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Learner
Participant ○

Update On the Secure Act

In May, it looked as if the Secure Act would pass the Senate in June but then it stalled.  Here is an update on this retirement bill:

https://www.cnbc.com/2019/11/20/this-bill-to-improve-your-retirement-is-stuck-in-congress.html

56 Replies
JohnCL
Follower ○○○

Re: Update On the Secure Act

Cruz, Toomey and Lee were the 3 Senators who placed "holds" on this legislation and from what I've read, McConnell is not particularly enthusiastic about the bill.

John L.


@Learner wrote:

In May, it looked as if the Secure Act would pass the Senate in June but then it stalled.  Here is an update on this retirement bill:

https://www.cnbc.com/2019/11/20/this-bill-to-improve-your-retirement-is-stuck-in-congress.html


 

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Intruder
Participant ○○○

Re: Update On the Secure Act


@JohnCL wrote:

Cruz, Toomey and Lee were the 3 Senators who placed "holds" on this legislation and from what I've read, McConnell is not particularly enthusiastic about the bill.

John L.


@Learner wrote:

In May, it looked as if the Secure Act would pass the Senate in June but then it stalled.  Here is an update on this retirement bill:

https://www.cnbc.com/2019/11/20/this-bill-to-improve-your-retirement-is-stuck-in-congress.html


 


Duh. Reason McConnell is not a happy camper is because there are 22 republican senate seats up for re-election in 2020 and republicans only have a 3 vote majority. Why would McConnell piss of off all the middle class boomers who were planning to pass off their TIRAs and Roth’s to their children and GC over their kids life times instead of taking a big tax hit during their peak working years by being required to take distributions over 10 years.

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Capital
Participant ○○○

Re: Update On the Secure Act


@Intruder wrote:

@JohnCL wrote:

Cruz, Toomey and Lee were the 3 Senators who placed "holds" on this legislation and from what I've read, McConnell is not particularly enthusiastic about the bill.

John L.


@Learner wrote:

In May, it looked as if the Secure Act would pass the Senate in June but then it stalled.  Here is an update on this retirement bill:

https://www.cnbc.com/2019/11/20/this-bill-to-improve-your-retirement-is-stuck-in-congress.html


 


Duh. Reason McConnell is not a happy camper is because there are 22 republican senate seats up for re-election in 2020 and republicans only have a 3 vote majority. Why would McConnell piss of off all the middle class boomers who were planning to pass off their TIRAs and Roth’s to their children and GC over their kids life times instead of taking a big tax hit during their peak working years by being required to take distributions over 10 years.


Personally I have an issue with the 10-year rule on Roth IRAs. In an era when we need to encourage saving for retirement, this seems to be doing exactly the opposite.

Capital
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Intruder
Participant ○○○

Re: Update On the Secure Act


@Capital wrote:

@Intruder wrote:

@JohnCL wrote:

Cruz, Toomey and Lee were the 3 Senators who placed "holds" on this legislation and from what I've read, McConnell is not particularly enthusiastic about the bill.

John L.


@Learner wrote:

In May, it looked as if the Secure Act would pass the Senate in June but then it stalled.  Here is an update on this retirement bill:

https://www.cnbc.com/2019/11/20/this-bill-to-improve-your-retirement-is-stuck-in-congress.html


 


Duh. Reason McConnell is not a happy camper is because there are 22 republican senate seats up for re-election in 2020 and republicans only have a 3 vote majority. Why would McConnell piss of off all the middle class boomers who were planning to pass off their TIRAs and Roth’s to their children and GC over their kids life times instead of taking a big tax hit during their peak working years by being required to take distributions over 10 years.


Personally I have an issue with the 10-year rule on Roth IRAs. In an era when we need to encourage saving for retirement, this seems to be doing exactly the opposite.


If congress wants to shorten the Payout period for inherited retirement benefits they can do it prospectively , e.g., for amounts contributed after the effective date of the change in law in 2020.

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TheWizard
Explorer ○○○

Re: Update On the Secure Act

I'm not sure "prospectively" is the correct adverb...

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Intruder
Participant ○○○

Re: Update On the Secure Act


@TheWizard wrote:

I'm not sure "prospectively" is the correct adverb...

Why not?

when congress changed the rules of how to exclude after tax contributions from taxable retirement distributions in 1986 it grandfathered all after tax contributions  made prior to 1987 from the change to preserve  the expectations of those plan participants who made after tax contributions  under the tax law in effect prior to the 1986 change

Are you an academic?

 

 

 

 

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Kings60Man
Follower ○○○

Re: Update On the Secure Act

Secure Act was passed overwhelming in Congress by both Democrats & Republicans. 

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GLI2019
Contributor ○

Re: Update On the Secure Act

I am a retired academic and "prospectively" accurately describes what Intruder is suggesting (not that it requires an academic to see this).

Although Kingsman writes the "Secure Act was passed overwhelming in Congress by both Democrats & Republicans," I am afraid he should have said it was passed by the House.  We await a vote in the Senate.

Bob

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Mozart622
Explorer ○○

Re: Update On the Secure Act

"If congress wants to shorten the Payout period for inherited retirement benefits they can do it prospectively , e.g., for amounts contributed after the effective date of the change in law in 2020"

Or they could exclude the first X amount of inherited Roth IRAs.  I'm guessing that the average boomer and pre-boomer does not have Roths exceeding, say 250K.   

Intruder
Participant ○○○

Re: Update On the Secure Act


@Mozart622 wrote:

"If congress wants to shorten the Payout period for inherited retirement benefits they can do it prospectively , e.g., for amounts contributed after the effective date of the change in law in 2020"

Or they could exclude the first X amount of inherited Roth IRAs.  I'm guessing that the average boomer and pre-boomer does not have Roths exceeding, say 250K.   


There are proposed amendments which would allow IRA owners to exclude a fixed amount, e.g, 500K, from the mandatory distributions required by non spouse  beneficiaries.

Under the SECURE legislation that passed the house there is no revenue increase from forcing inherited Roth’s to be distributed not later than 10 years after death of the owner because tax legislation can only consider revenue that would be generated for the first 10 years after a tax law takes effect. If the inheritors of Roth IRAs wait until10 years after the death of the Roth IRA owner to withdraw the balance in the inherited account there will be 0 tax revenue generated when the funds are withdrawn from the Roth IRA because Roth distributions are not taxable..

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Ken123
Follower ○○

Re: Update On the Secure Act

Current law allows heirs to take distributions from an inherited IRA over their expected lifetime. Financial planners often call this a Stretch IRA. 

The SECURE act eliminates the Stretch IRA by requiring distributions to be taken within 10 years. 

For traditional IRAs, this can greatly increase taxes heirs must pay.

For Roth IRAs, earnings on the funds are no longer tax-free after distribution. This can have a substantial impact especially on younger heirs.

The House passed the SECURE act almost unanimously by 417 to 3. The provision to eliminate Stretch IRAs appears not to have caused any significant opposition.

There seem to be several reasons for this:

— Tax-sheltered retirement plans were created to help people provide for their own retirement, not to enrich heirs.

— It’s likely the vast majority of Stretch IRAs are used by the wealthy or financially well-off.

— Some rich people aggressively exploit Stretch IRAs to pass wealth to heirs. Mitt Romney, for example, reportedly has between $20 and $100 million in IRA accounts.

— When rich people exploit provisions to escape taxes, they come to be known as “loopholes.”

— Closing loopholes for the rich is one of the least controversial things that Congress can do.

 

judger
Explorer ○○

Re: Update On the Secure Act


@Ken123 wrote:

Current law allows heirs to take distributions from an inherited IRA over their expected lifetime. Financial planners often call this a Stretch IRA. 

The SECURE act eliminates the Stretch IRA by requiring distributions to be taken within 10 years. 

For traditional IRAs, this can greatly increase taxes heirs must pay.

For Roth IRAs, earnings on the funds are no longer tax-free after distribution. This can have a substantial impact especially on younger heirs.

The House passed the SECURE act almost unanimously by 417 to 3. The provision to eliminate Stretch IRAs appears not to have caused any significant opposition.

There seem to be several reasons for this:

Tax-sheltered retirement plans were created to help people provide for their own retirement, not to enrich heirs.

It’s likely the vast majority of Stretch IRAs are used by the wealthy or financially well-off.

— Some rich people aggressively exploit Stretch IRAs to pass wealth to heirs. Mitt Romney, for example, reportedly has between $20 and $100 million in IRA accounts.

When rich people exploit provisions to escape taxes, they come to be known as “loopholes.”

— Closing loopholes for the rich is one of the least controversial things that Congress can do.

 


I believe that your statement that current law allows IRA heirs to "stretch" the inherited IRA payout "over their expected lifetimes" is incorrect. In the last year, I did an extended series of emails with a TIAA expert lawyer who was a valued assistant when we created our living trust and a visit to a local CPA to determine whether it is best to keep charitable gifts under the more complex IRA beneficiary law - conclusion was for tax purposes live with the beneficiary law difficulties and leave the gifts in the IRA. Just in casual conversation the TIAA lawyer pointed out that my understanding of the current Stretch IRA law was incorrect and then warned me that Congress was cooking up even more stringent constraints on non-spousal heirs - see the result in this discussion.

Just to be accurate, any non-spousal heir does indeed use their age to determine the INITIAL percentage for the first year that they must take as an RMD from the inherited IRA. Note that they must keep the inheritance identified as inherited forever. In succeeding years, the heir MUST add one year to their age to determine the RMD percentage. This process results in my understanding the heir will exhaust the IRA somewhere in their mid-80's, not at age 110 years or whatever our IRS sets this age and that of our spouse would be. So what? Higher taxes, much faster!!!   :-(((

I immediately sent letters to all of our Congressmen telling them what we thought of this idea and that we would be carefully watching how they voted on this matter.

I have highlighted a number of your statements that seem to be a fair reflection of the attitudes of many on this forum. Myself, as reflected in past posts, is ANGER when I see politicians pulling rugs out from underneath us after we have implemented long term strategies based on existing law.

To be perfectly transparent:

  • We are both from modest, working class, blue collar families.
  • We both either paid for or diligently used our parents good will to educate ourselves.
  • We have spent decades saving and investing and paying the taxes required by law.
  • We have made major moves in our retirement strategies to first insure the welfare of the other spouse and then each child, equally, using the Stretch IRA and Roth's that were prescribed by national IRA/tax experts..
  • We never considered these "loopholes", even if a few like the Mitt Romney's found them in this retirement scheme - not our fault that law writers are never smarter than the smartest people in the world and it isn't fair to those of us that played by the rules.

Ken, please do not take my post as a personal statement. It's just that you seem to have stated very well the attitude of many others. Thank you for providing a platform that allowed me to clarify another view.   :-)))

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Ken123
Follower ○○

Re: Update On the Secure Act

 

Judger,

Thanks for clarifying how the Stretch IRA works. 

My understanding has been that heirs can take distributions according to the RMD schedules which are based on life expectancy tables. That’s what I was referring to when I said distributions are allowed for their “expected” lifetime (as opposed to actual lifetime). 

I don’t know exactly how RMDs work because I’m not subject to them. Based on advice I learned from this forum, I converted all IRAs to Roth before beginning Social Security at age 70. This not only avoids RMDs, but Roth distributions don’t trigger higher taxes on Social Security, and they don’t trigger higher income-related premiums on Medicare Parts B and D.

I agree that Congress should avoid making changes that seriously disrupt financial plans people have made over many years.

In my case, if my heirs (8 young nephews) inherit my Roth accounts, they will pay much more in taxes from having to withdraw all Roth funds within 10 years instead of using the RMD tables. 

However, I don’t feel angry about the change. Congress often makes changes that negatively affect certain groups. Another recent example was when “SALT” deductions for state & local taxes were limited to $10,000. 

When changes like this are made, the affected group will be unhappy. But when that group is mostly limited to the financially well-off, Congress is less likely to pay attention to the complaints.

Another future change we might see:

Congress might decide that retired people with Roth accounts are using a “loophole” to avoid higher taxes. We might be required to include Roth distributions when calculating taxes on Social Security, and when paying income-related premiums on Medicare Parts B & D. This would disrupt my own financial plans. I would hope that people already in retirement (or close to it) would be exempt from the change.  But if not, I would just accept it as part of the great game of life, death, and taxes.

 

Intruder
Participant ○○○

Re: Update On the Secure Act


@Ken123 wrote:

 

Judger,

Thanks for clarifying how the Stretch IRA works. 

My understanding has been that heirs can take distributions according to the RMD schedules which are based on life expectancy tables. That’s what I was referring to when I said distributions are allowed for their “expected” lifetime (as opposed to actual lifetime). 

I don’t know exactly how RMDs work because I’m not subject to them. Based on advice I learned from this forum, I converted all IRAs to Roth before beginning Social Security at age 70. This not only avoids RMDs, but Roth distributions don’t trigger higher taxes on Social Security, and they don’t trigger higher income-related premiums on Medicare Parts B and D.

I agree that Congress should avoid making changes that seriously disrupt financial plans people have made over many years.

In my case, if my heirs (8 young nephews) inherit my Roth accounts, they will pay much more in taxes from having to withdraw all Roth funds within 10 years instead of using the RMD tables. 

However, I don’t feel angry about the change. Congress often makes changes that negatively affect certain groups. Another recent example was when “SALT” deductions for state & local taxes were limited to $10,000. 

When changes like this are made, the affected group will be unhappy. But when that group is mostly limited to the financially well-off, Congress is less likely to pay attention to the complaints.

Another future change we might see:

Congress might decide that retired people with Roth accounts are using a “loophole” to avoid higher taxes. We might be required to include Roth distributions when calculating taxes on Social Security, and when paying income-related premiums on Medicare Parts B & D. This would disrupt my own financial plans. I would hope that people in retirement (or close to it) would be exempt from the change.  But if not, I would just accept it as part of the great game of life, death, and taxes.

 


Just what loophole to avoid taxes are you thinking of? According to the legislative history of the Roth IRA congress enacted the Roth IRA to collect tax revenue up front so that taxpayers could avoid future taxes in retirement. 

The magi threshold for taxing 85% of SS benefits is quite low. only 65k for a married couple so there is little revenue to be collected if Roth IRAs are counted as income to determine taxation of SS.

when Congress eliminated the 100K income cap on eligibility to make a Roth conversion in 2006 it specifically noted its intent to allow more taxpayers to make conversions to lower future taxes. And how is congress going to include Income that has already been taxed so that it is not subject to RMDs be counted as income again?

Spoiler
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Ken123
Follower ○○

Re: Update On the Secure Act

 

Intruder wrote:

Just what loophole to avoid taxes are you thinking of?

I don’t regard the exclusion of Roth distributions from SS tax calculation as a loophole. But I wouldn't  be surprised if some in Congress think it is.

 

There is little revenue to be collected if Roth IRAs are counted as income to determine taxation of SS.

I hope you’re right which would make the change less likely.

If I had to include Roth distributions in calculating tax on SS, my income tax would be about $2000 more each year.

 

How is congress going to include Income that has already been taxed so that it is not subject to RMDs be counted as income again.

If Congress wanted to make this change, it seems like it would be easy to implement. It could follow the same method used for tax-exempt bonds. Interest from such bonds is not subject to income tax. But the interest must be reported on your tax return and must be included when calculating tax on SS.

Distributions from Roth must currently be reported on your tax return even though they are not taxable. So it would be a simple change to say that the distributions must be included when calculating tax on SS.

 

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retiredat48
Participant ○○○

Re: Update On the Secure Act

 

Ken...I agree with Judger posts below.

The issue is not whether or not the reasons or rationale you cite is good or not.

The issue is back-fitting these into current plans, that were made on contractual agreements at the time.  

Many posters paid  taxes to do conversions to ROTH IRAs , only to have the key benefit, heirs usage over their lifetime, taken away.  No grandfathering.

Also the Trad IRA limitation of ten years on heirs is huge.  For instance, heirs are at their typical peak earnings.  Now they have to withdraw as income, an IRA liquidation over ten years...added to their income.  For a one million IRA, that is $100,000+ a year added to beneficiary income...a huge tax hit.  No grandfathering.

The key here is the loss of trust that ensues in gvt taking away something that was paid for/rules followed by IRA savers.

It also puts doubt in current IRA usage...like Trad IRAs would become NOT VERY USEFUL.  Ways exist now to achieve, in taxable accounts, the same benefits of IRAs.

And the step-up cost tax basis of stock assets, at death, is likely next on the table.  

Secure Act will require complete redoing of my estate plans, with significant changes.

I see our kids taking a couple years off, sailing the Ocean's, rather than having additive IRA distribution income onto current salaries, to avoid such huge taxes.

But hey, I have been posting for years that gvt will take away IRA benefits, especially ROTHs.  Now it is occurring.  Who woulda thunk it?!

Good day...

R48

 

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yogibearbull
Valued Contributor

Re: Update On the Secure Act


@Intruder wrote:


.....

when Congress eliminated the 100K income cap on eligibility to make a Roth conversion in 2006 it specifically noted its intent to allow more taxpayers to make conversions to lower future taxes. And how is congress going to include Income that has already been taxed so that it is not subject to RMDs be counted as income again?


Income cap for Roth Conversion was eliminated in 2010.

YBB
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sugarhill6
Explorer ○○

Re: Update On the Secure Act

Not a big fan for increasing the age to begin required minimum distributions.   Another bill that adds to the mountain of debt that we have.....    

 


@Learner wrote:

In May, it looked as if the Secure Act would pass the Senate in June but then it stalled.  Here is an update on this retirement bill:

https://www.cnbc.com/2019/11/20/this-bill-to-improve-your-retirement-is-stuck-in-congress.html


 

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judger
Explorer ○○

Re: Update On the Secure Act


@Ken123 wrote:

 

Judger,

Thanks for clarifying how the Stretch IRA works. 

My understanding has been that heirs can take distributions according to the RMD schedules which are based on life expectancy tables. That’s what I was referring to when I said distributions are allowed for their “expected” lifetime (as opposed to actual lifetime). 

...

 


Ken, below are some excerpts from my email conversations with a very knowledgeable TIAA lawyer in St Louis to help better understand how Stretch IRA's for non-spouse heirs work currently - on the Fidelity web page click on "For Non-Spouses" and then click on the "View an example of a surviving child ...":

"I think that the Fidelity web page below, including an example, finally got me to understand this RMD reduce-by-1 method of calculating RMD’s for inherited non-spouse IRA's:

 
This comes as a shock to me, since I assumed that the kids could just use an IRS table like I do starting at their inheritance age and going to age 110."
 
Elsewhere in these emails the TIAA lawyer implied that the heirs have until about age 84 to exhaust their IRA inheritance.
 
I hope that this helps others. It certainly shocked me into reality!    :-)))
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