Deleted
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Post by Deleted on Dec 21, 2019 12:11:14 GMT -5
As you probably know, the Senate and House passed a bill affecting retirement. It is part of a package that allows the government a temporary (LOL) extension so it can pay its bills. President Trump is expected to sign it if he hasn't already. Key provisions for most of us are these: - No age at which you must quit contributing to a regular IRA.
- Raises the age for RMDs from 70.5 to 72.
- Removal of "stretch" IRAs when my kids inherit what is left in my accounts. They have to take it over 10 years.
There are several other provisions so here is a link to a Forbes article: link
I found the RMD provision the most interesting personally. I know I will need to take at least some distributions before that. Now I will feel "guilty."
Your thoughts?
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Deleted
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Post by Deleted on Dec 21, 2019 12:23:16 GMT -5
I'm mostly interested in the piece about being able to use 529 money to pay student loans. I also was not aware there was an age limit to contributing to IRAs...
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Deleted
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Post by Deleted on Dec 21, 2019 12:59:28 GMT -5
I'm mostly interested in the piece about being able to use 529 money to pay student loans. I also was not aware there was an age limit to contributing to IRAs... I don't think there was for either 401ks or Roths. But it was 70 for regular IRAs. I forgot about the 529 money to pay student loans. I wonder whose student loans, though? Would it be the owner of the account (usually a parent or grandparent) or the beneficiary of the account? And what would be the purpose of using the 529 to pay the student's loan off? Why wouldn't the money be used upfront to avoid a loan?
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Deleted
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Post by Deleted on Dec 21, 2019 13:19:42 GMT -5
I wonder whose student loans, though? Would it be the owner of the account (usually a parent or grandparent) or the beneficiary of the account? And what would be the purpose of using the 529 to pay the student's loan off? Why wouldn't the money be used upfront to avoid a loan? It says to the beneficiary or a sibling of the beneficiary. So, if you are conservative with child number one to make the 529 money last and make him/her take loans, when child number 2 comes along and doesn't need it all, you can double back and pay off the loans from the first. The limit is 10K though per person getting loans paid, so you can't go crazy.
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MN-Investor
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Post by MN-Investor on Dec 21, 2019 13:53:30 GMT -5
I love the change in age for RMDs. It's still a few years out for me, but it affects any one born after 6/30/1949, i.e., folks who turn 70.5 after 2019. I already emailed my sister with that good news. Her birthday is Sept 1949.
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Tiny
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Post by Tiny on Dec 21, 2019 14:48:00 GMT -5
Question on RMDs... if you are already taking say 25K from your 401K every year (living expenses) and you have to take an RMD of say 22K, You would still take 25K out of your 401K - 22K would be the RMD and 3K would be just a normal withdrawl?
I can see where if you are not taking any money from your retirement accounts - because your pension/SS/after tax savings $$ are providing enough income the additional taxable $$ would be annoying.
I'm guessing that most people will actually need to use their 401K money to fund their retirement (along with any SS income). Hence my question.
I see how the removal of the "stretch" option effects people who would use their retirement accounts to create generational wealth - especially if they did not need to use the $$ in the retirement accounts.
I don't really see how moving the RMD age affects much - expecially for anyone who is drawing down their retirement accounts for day to day living.
What am I missing?
FWIW: I'm kind of glad they changed that Stretch IRA thing...
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TheOtherMe
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Post by TheOtherMe on Dec 21, 2019 16:53:10 GMT -5
Had not heard about this.
Only thing that affects me is the inherited IRA. I did a quick google and it looks like the act will be effective January 1, 2020.
Have no idea how this will affect me. The IRA didn't have that much left so, for me, it is not a big deal. It has been bothering my sister and BIL. I'm guessing their tax rate is higher than mine.
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Deleted
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Post by Deleted on Dec 21, 2019 17:17:16 GMT -5
Question on RMDs... if you are already taking say 25K from your 401K every year (living expenses) and you have to take an RMD of say 22K, You would still take 25K out of your 401K - 22K would be the RMD and 3K would be just a normal withdrawl? I can see where if you are not taking any money from your retirement accounts - because your pension/SS/after tax savings $$ are providing enough income the additional taxable $$ would be annoying. I'm guessing that most people will actually need to use their 401K money to fund their retirement (along with any SS income). Hence my question. I see how the removal of the "stretch" option effects people who would use their retirement accounts to create generational wealth - especially if they did not need to use the $$ in the retirement accounts. I don't really see how moving the RMD age affects much - expecially for anyone who is drawing down their retirement accounts for day to day living. What am I missing? FWIW: I'm kind of glad they changed that Stretch IRA thing... One of the major criticisms of this act is that it primarily benefits the rich. There are aspects that help small company employees and part-time employees, but most of it has nothing to do with the majority of us. I'm not sure about the Stretch IRA thing. I have mixed feelings about it. IRAs were touted as great vehicles because you will be in a lower tax bracket. My kids, both in their 40s, are approaching their peak earning years. If I drop dead tomorrow, they will pay a lot more in taxes on this money than I ever would have. I suspect they will be fonder of the Roth than the regular IRA . . . if anything is left of either. I'll just have to plan on spending it all to make their lives easier.
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Tiny
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Post by Tiny on Dec 21, 2019 18:08:50 GMT -5
One of the major criticisms of this act is that it primarily benefits the rich. There are aspects that help small company employees and part-time employees, but most of it has nothing to do with the majority of us. I'm not sure about the Stretch IRA thing. I have mixed feelings about it. IRAs were touted as great vehicles because you will be in a lower tax bracket. My kids, both in their 40s, are approaching their peak earning years. If I drop dead tomorrow, they will pay a lot more in taxes on this money than I ever would have. I suspect they will be fonder of the Roth than the regular IRA . . . if anything is left of either. I'll just have to plan on spending it all to make their lives easier. YEah, it will be up to your kids to figure out how best to shelter the money from taxes. (I would think maybe having the ability to max out all tax deferred retirement plans would be one way...I'm always kind of awestruck on the max amount a married couple can put into 401K/IRA/HSA each year). It might make more sense to have one's grandkids/great grands as beneficiaries. They might be in lower tax brackets (and maybe can work out a way to max their own retirement accounts for some years... give them a nice foot up on their own retirement.)
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TheOtherMe
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Post by TheOtherMe on Dec 21, 2019 20:05:39 GMT -5
When my parents were paying in to IRA's, there were no Roths. IRAs were the only option and the limits for contributions were much lower than today.
Now dad being 95, the total left in the account is small in my books. It also gets divided in half for my share.
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lynnerself
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Post by lynnerself on Dec 21, 2019 20:12:11 GMT -5
My understanding is that the change in the inherited IRA is not retroactive. So hopefully no change in the one I currently receive.
There has been talk of this change for along time. IRAs were supposed to delay taxes and help a person's retirement. The government doesn't want their taxes put off for generations.
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hoops902
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Post by hoops902 on Dec 21, 2019 21:05:08 GMT -5
Question on RMDs... if you are already taking say 25K from your 401K every year (living expenses) and you have to take an RMD of say 22K, You would still take 25K out of your 401K - 22K would be the RMD and 3K would be just a normal withdrawl? I can see where if you are not taking any money from your retirement accounts - because your pension/SS/after tax savings $$ are providing enough income the additional taxable $$ would be annoying. I'm guessing that most people will actually need to use their 401K money to fund their retirement (along with any SS income). Hence my question. I see how the removal of the "stretch" option effects people who would use their retirement accounts to create generational wealth - especially if they did not need to use the $$ in the retirement accounts. I don't really see how moving the RMD age affects much - expecially for anyone who is drawing down their retirement accounts for day to day living. What am I missing? FWIW: I'm kind of glad they changed that Stretch IRA thing... One of the major criticisms of this act is that it primarily benefits the rich. There are aspects that help small company employees and part-time employees, but most of it has nothing to do with the majority of us. I'm not sure about the Stretch IRA thing. I have mixed feelings about it. IRAs were touted as great vehicles because you will be in a lower tax bracket. My kids, both in their 40s, are approaching their peak earning years. If I drop dead tomorrow, they will pay a lot more in taxes on this money than I ever would have. I suspect they will be fonder of the Roth than the regular IRA . . . if anything is left of either. I'll just have to plan on spending it all to make their lives easier. Yes, and that's largely still true. They were NOT touted as a way to pass on money to your heirs tax-free or at greatly reduced tax rates. That's part of why you're seeing the rule change. And frankly, this particuarly change does NOT benefit the rich. People who are poor aren't generally passing down tons of money to their heirs via an IRA. People with MONEY do that. And if the family IS poor, then they aren't losing anything by taking the distributions when their tax rates are low due to them being poor.
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tallguy
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Post by tallguy on Dec 21, 2019 21:16:02 GMT -5
Question on RMDs... if you are already taking say 25K from your 401K every year (living expenses) and you have to take an RMD of say 22K, You would still take 25K out of your 401K - 22K would be the RMD and 3K would be just a normal withdrawl? I can see where if you are not taking any money from your retirement accounts - because your pension/SS/after tax savings $$ are providing enough income the additional taxable $$ would be annoying. I'm guessing that most people will actually need to use their 401K money to fund their retirement (along with any SS income). Hence my question. I see how the removal of the "stretch" option effects people who would use their retirement accounts to create generational wealth - especially if they did not need to use the $$ in the retirement accounts. I don't really see how moving the RMD age affects much - expecially for anyone who is drawing down their retirement accounts for day to day living. What am I missing? FWIW: I'm kind of glad they changed that Stretch IRA thing... Yes. RMD rules require that you take that amount out of your IRAs (or whatever accounts you have that are subject to RMDs) each year or pay a large tax penalty. You are not precluded from taking more than the RMD amount. You can in fact take as much as you wish each year. The IRS is concerned only that you take at least the RMD amount. You cannot, by the way, convert the RMD amount to a Roth. You must take a distribution of the RMD amount before taking more for a Roth conversion. ETA: Noting that you specifically mentioned a 401k rather than an IRA, the rules are different for the different account types. 1. You do not have to take RMDs from your current employer's 401k account while you are continuing to work unless you are a 5% owner of the business. You must take them when you retire after 70.5 years of age. 2. While RMDs must be calculated separately for every account, an IRA owner can take their RMDs from any or all of their IRAs. For workplace plans like a 401k (either traditional or Roth) the RMD for each account must be taken separately. If someone has, say, three 401k plans from three employers, or both a pretax and a Roth 401k from the same employer, they must take a separate RMD from each account. That simplification is a strong argument for doing a rollover of 401k plans to an IRA.
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Deleted
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Post by Deleted on Dec 21, 2019 22:16:22 GMT -5
One of the major criticisms of this act is that it primarily benefits the rich. There are aspects that help small company employees and part-time employees, but most of it has nothing to do with the majority of us. I'm not sure about the Stretch IRA thing. I have mixed feelings about it. IRAs were touted as great vehicles because you will be in a lower tax bracket. My kids, both in their 40s, are approaching their peak earning years. If I drop dead tomorrow, they will pay a lot more in taxes on this money than I ever would have. I suspect they will be fonder of the Roth than the regular IRA . . . if anything is left of either. I'll just have to plan on spending it all to make their lives easier. Yes, and that's largely still true. They were NOT touted as a way to pass on money to your heirs tax-free or at greatly reduced tax rates. That's part of why you're seeing the rule change. And frankly, this particuarly change does NOT benefit the rich. People who are poor aren't generally passing down tons of money to their heirs via an IRA. People with MONEY do that. And if the family IS poor, then they aren't losing anything by taking the distributions when their tax rates are low due to them being poor. I don't disagree. That is why I said I have mixed feelings about the stretch thing.
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justme
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Post by justme on Dec 21, 2019 22:28:11 GMT -5
I wonder whose student loans, though? Would it be the owner of the account (usually a parent or grandparent) or the beneficiary of the account? And what would be the purpose of using the 529 to pay the student's loan off? Why wouldn't the money be used upfront to avoid a loan? It says to the beneficiary or a sibling of the beneficiary. So, if you are conservative with child number one to make the 529 money last and make him/her take loans, when child number 2 comes along and doesn't need it all, you can double back and pay off the loans from the first. The limit is 10K though per person getting loans paid, so you can't go crazy.
Could you put your own money into your own 529 and then use that to pay your loans with tax free money?
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Deleted
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Post by Deleted on Dec 21, 2019 22:50:55 GMT -5
It says to the beneficiary or a sibling of the beneficiary. So, if you are conservative with child number one to make the 529 money last and make him/her take loans, when child number 2 comes along and doesn't need it all, you can double back and pay off the loans from the first. The limit is 10K though per person getting loans paid, so you can't go crazy.
Could you put your own money into your own 529 and then use that to pay your loans with tax free money? You can have yourself be the beneficiary of your own 529, yes. The tax savings might not be much if you're just funneling it through the account though. The main advantage of a 529 is the growth is tax free if used for qualified education expenses. Some states have deductions or credits for 529 contributions, but they'd have to adopt the law as well before you could do that. They changed federal law that up to 10K/year of 529 money could be used for K-12 but my state didn't conform, so if I were to take money out for K-12 the state claws back the tax break.
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justme
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Post by justme on Dec 21, 2019 23:04:11 GMT -5
Could you put your own money into your own 529 and then use that to pay your loans with tax free money? You can have yourself be the beneficiary of your own 529, yes. The tax savings might not be much if you're just funneling it through the account though. The main advantage of a 529 is the growth is tax free if used for qualified education expenses. Some states have deductions or credits for 529 contributions, but they'd have to adopt the law as well before you could do that. They changed federal law that up to 10K/year of 529 money could be used for K-12 but my state didn't conform, so if I were to take money out for K-12 the state claws back the tax break. Gotcha. So complicated.
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tractor
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Post by tractor on Dec 22, 2019 9:07:28 GMT -5
The SECURE Act is something we in the co-op world have been fighting for over the past 4 years. All the other parts of it will garner most media attention, however, it also allows for well funded pensions to be able to reduce payments in the national pension benefit guarantee fund.
Our national pension is well funded, and their currently is no gap between what’s available, and what’s owed to it’s members. The reduction in payments will save us $30 million per year in insurance payments. That money can now go to further support our members. 🙂
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Deleted
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Post by Deleted on Dec 22, 2019 11:20:31 GMT -5
I'm happy about moving the RMD age to 72; was dreading the "tax torpedo" at age 70 when I start collecting SS on my own record (about $1,300/month increase from my Survivor benefits) but get nailed for taxes on my RMD. I hope they still have the provision allowing direct donation from IRAs to charity with no taxation; we did that with DH's RMDs and since I donate a lot to charity that will be a huge help. Not concerned about the changes to inherited IRAs; DS and DDIL will inherit enough that that won't be an issue and my brother the hotshot tax accountant is a trustee and will give then appropriate guidance. When DH was in his last months we told his son (my stepson) that we intended to move DH's $17,000 IRA to his name after DH died. Stepson was mostly interested in how to liquidate it immediately. We changed course; DH named me beneficiary and I just gave DSS a check for $17,000.
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TheOtherMe
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Post by TheOtherMe on Jan 16, 2020 20:23:42 GMT -5
My sister and I went to the bank today to decide what we are doing with dad's IRA.
The Secure Act did not apply because dad passed away before year end. That gave each of us more options.
I was concerned that because we couldn't do anything without the death certificate, which meant waiting this long, the Secure Act would apply.
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Happy prose
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Post by Happy prose on Jan 17, 2020 5:46:09 GMT -5
Can someone please explain the stretch to me? If I die, and my daughter gets my 457 account, what are the new rules as to how she has to use it? I want to give her a heads up!
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hoops902
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Post by hoops902 on Jan 17, 2020 11:18:21 GMT -5
Can someone please explain the stretch to me? If I die, and my daughter gets my 457 account, what are the new rules as to how she has to use it? I want to give her a heads up! So here's the simplified version, as that's probably all someone needs for a basic understanding. Stretch rule (i.e. the rule that's going away): Your daughter would open up an Inherited IRA (i.e. A Stretch IRA) and rollover the money from the 457 into it (or she could just take the money immediately as a payout, that part isn't changing though). From the stretch account, the IRS has rules for how you have to take payments from the stretch based on the age of the deceased individual. Depending on the age of the person who died, the payments might be based on their age, or on the age of the person inheriting the money (in this case your daughter). There's also a 3rd option (option 1 is taking all the money, option 2 is using the stretch) which is that you take all of the money out over 5 years rather than all at once. The Stretch rule essentially allows someone to take the money slowly over time which limits taxable impacts to the beneficiary. The new rule is that by the end of the 10th year after death, all the money has to be withdrawn. As an example of today's rule, if you were 60 and died, and your daughter was 30...you were young enough that she could stretch the Inherited IRA payments out over HER lifetime, which might be decades. Under the new rule, she'd have 10 years to pull the money out, and likely pay higher taxes on it since the amount she's taking is higher and she's in some good earning years.
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Happy prose
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Post by Happy prose on Jan 17, 2020 17:23:32 GMT -5
Thanks hoops902. So the new rule is 10 years, no matter my age or hers?
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hoops902
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Post by hoops902 on Jan 20, 2020 8:34:02 GMT -5
Thanks hoops902 . So the new rule is 10 years, no matter my age or hers? Yep, that's pretty much it from my understanding.
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jerseygirl
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Post by jerseygirl on Jan 20, 2020 9:03:22 GMT -5
Does the 10 year rule apply to children under 18? If not when are they required to start spending down (get taxed) on inherited IRAs?
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hoops902
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Post by hoops902 on Jan 20, 2020 9:15:51 GMT -5
Does the 10 year rule apply to children under 18? If not when are they required to start spending down (get taxed) on inherited IRAs? I believe (but might be proven wrong) that minor children can basically still use the old rules of taking money out based on their own life expectancy. I think once they hit the age of majority (could be 18, could be another age), then they have 10 years to take the money out.
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