New retirement withdrawals rules

[Rogar]

I would encourage anyone who this might affect to verify the information, but it's my understanding that new inherited IRAs will need to withdraw the balance in a period less than ten years rather than stretching the minimum withdrawals over the life expectancy of the beneficiary. Applies to new inherited IRAs happening in 2020 and afterwards.

Also, starting RMDs from other retirement accounts, other than Roths, has changed from 70 1/2 to 72.

At a time the first would have affected me. The second may have some implications in my tax planning. There are some finer details worth verifying before taking my word for things.

[CathyA]

Thanks Rogar. I think I read about this. I guess changing the inherited IRA to withdraw within 10 years might put a strain on the heirs to pay those taxes. But maybe it really only affects the heirs who would be getting a ton of money??

[Rogar]

Thanks Rogar. I think I read about this. I guess changing the inherited IRA to withdraw within 10 years might put a strain on the heirs to pay those taxes. But maybe it really only affects the heirs who would be getting a ton of money??

Withdrawals from my inherited IRA started in my early 50's. There have been years when taking the distributions as income over a shorter period than existing the RMD rules of the time would have bumped me into a higher tax bracket. It wasn't really a tax strain and the IRA was not large, but I'd just as soon optimize my tax liabilities.

[kib]

I wasn't thrilled either, not taking distributions at all for another 15 years or so, on anything, was definitely part of the plan. Not only a bracket bump but losing out on tax deferral during major earning years. Guess I can't whine too loudly but really, just another way they're squeezing us nobodies.

[sweetana3]

Only affects those other than spouses who inherit. Why should we/they be able to stretch out the period? Suggestion, arrange life insurance and donate the IRA if the taxes are so much of an issue. Thankfully, they did not make it fully taxable immediately to other than spouses.

[kib]

It's not so much that it "should" be one way or the other, it's just that frankly, people 15-20 years ahead of me seem to have snuck in and gotten what's good and then changed the rules for everyone standing in line behind them. Responsible finances includes planning based on the law, and every time the law changes, it takes a little more away. I know, I know, every generation blames the one before, but it gets tiresome to try to maintain a plan that gets co-opted and sucked dry every time it seems it might work.

... I feel like I spend my life cleaning up and making things viable only to have someone come along and say, "Nice! A neat tidy thing for me to take from you!!"

[lhamo]

Thanks Rogar. I think I read about this. I guess changing the inherited IRA to withdraw within 10 years might put a strain on the heirs to pay those taxes. But maybe it really only affects the heirs who would be getting a ton of money??

Why would there be a "strain" to pay taxes on extra money you weren't really planning on? Just pay a generous portion of the withdrawal in estimated taxes and get a refund later.

Where it probably will hurt people most, at least in the current environment, is wiping out healthcare subsidies for people who are otherwise not earning a lot. But again, anyone who is prudent should be able to estimate all that and figure out how much they actually have to spend after all taxes are accounted for. And if you mess it up the first year you can use the distribution in the second year to cover the taxes owed on the first year amount + the second year amount.

It makes a strong argument for converting as much as you can to Roth accounts (distributions over 10 years will still be required, but at least they won't be taxable), and generous gifting to potential heirs that is under the annual declarable amount while both you and potential heirs are still alive. Of course you always have to consider Medicaid lookback rules if there is a chance you might not be able to afford longterm care late in life. I am most likely going to use a combined strategy of gradual Roth conversions + strategic gifts to kids and any future grandkids. Plus leave a good hunk in a donor advised fund or simply designate to charity.

[jp1]

Personally I'm not going to freak out over this. I was fortunate to 'only' inherit about $5,000 in an IRA from my father that has required RMDs for the last few years. Way more significant, tax-wise, are all the post-tax investments he had which had significant capital gains all the gains of which got wiped out on the day he died. Whatever additional taxes I will owe because of this are pennies compared to the savings to me/him resulting from avoiding 30+ years of capital gains. (some of the stocks I now own were purchased by him as far back as 1982.)