Secure Act 2.0

[minnesotapaintlady]

Securing a Strong Retirement Act of 2022.  Anyone following this bill?  It passed the House a couple weeks ago and is with the Senate now.  Sounds like it's pretty much a sure thing it will go through, just not sure what modifications the Senate will apply to their version before they reconcile them.

Both the House and Senate version raise the RMD age to 75 and increase Catch-up contributions to 10K, but the House version requires all Catch-up contributions to be Roth (which I personally hope doesn't go through).  

There are 80 different things addressed in the bill like automatic enrollment in 401Ks and increasing the Saver's Credit. 


www.investopedia.com/house-passes-secure-act-2-0-5224312

[buystoys]

I've been kind of watching it, but not that closely.  I like the RMD change.  It will give us more time to empty our IRAs into our Roths without taking a really big tax hit.  I should have started Roth conversions years ago, but that just wasn't on my radar.  Having a couple more years to do them will help.

I wish they'd increase the IRA and Roth limits.  It's really not fair to those who have no access to a 401(k) to have such low limits on what they can contribute annually. 

[Deleted]

Apr 16, 2022 4:57:49 GMT -5 buystoys said:

I wish they'd increase the IRA and Roth limits.  It's really not fair to those who have no access to a 401(k) to have such low limits on what they can contribute annually. 

Well, the conventional wisdom used to be "contribute to the IRA before after-tax savings because you'll be in a lower bracket when you retire". Now I'm not so sure. Non-Roth IRA withdrawals trigger "stealth taxes" like the IRMAA adjustment and reduce what you can deduct for medical expenses (it's a % of AGI). All income you take out from a non-Roth is taxed as ordinary income even if it's dividends or LT gains.

When I was married to DH and still working I maxed out my IRA, including the catch-up contribution. We made too much money to stash any away for DH, who was already retired. A lot went into after-tax savings. I'm withdrawing from that now and dreading the day when I have to take RMDs. I'll be putting as much as I can into QCDs starting next year to run down the IRA balance.

To answer the OP's question: I don't pay to much attention to pending legislation till it's enacted.  A lot can happen in the meantime.

[minnesotapaintlady]

Apr 16, 2022 7:04:29 GMT -5 @athena53 said:

To answer the OP's question: I don't pay to much attention to pending legislation till it's enacted.  A lot can happen in the meantime.

I normally don't either, but this one has a lot of bipartisan support and is making a lot of traction. 

I have to ask though, if you're worried about RMD's why are you digging into post-tax savings now instead of eroding the pre-tax balance before they kick in?  

[minnesotapaintlady]

Apr 16, 2022 4:57:49 GMT -5 buystoys said:

I wish they'd increase the IRA and Roth limits.  It's really not fair to those who have no access to a 401(k) to have such low limits on what they can contribute annually. 

Same.  It's ridiculous that they don't just make the IRA limit the same as the 401K, or the same as the combined total.  Then make it that you have to subtract what you contributed to the 401K from your available IRA space.  

[minnesotapaintlady]

Apr 16, 2022 7:04:29 GMT -5 @athena53 said:

Apr 16, 2022 4:57:49 GMT -5 buystoys said:

Well, the conventional wisdom used to be "contribute to the IRA before after-tax savings because you'll be in a lower bracket when you retire". Now I'm not so sure. Non-Roth IRA withdrawals trigger "stealth taxes" like the IRMAA adjustment and reduce what you can deduct for medical expenses (it's a % of AGI). All income you take out from a non-Roth is taxed as ordinary income even if it's dividends or LT gains.

But what would your account balance be had you gone all post-tax?  I have been contributing to my Roth IRA for the past 15 years and it has been 100% funded by tax savings. I literally take my refund every year and send it directly to Vanguard.  It's currently just a hair under 20% of my entire retirement account balance or 4X my annual income and is all money I would not have if I had gone post-tax for the rest.  

[ken a.k.a OMK]

So if you are 75 yo and retired, taking SS and RMD, it doesn't affect you?

[minnesotapaintlady]

Apr 16, 2022 9:31:16 GMT -5 ken a.k.a OMK said:

So if you are 75 yo and retired, taking SS and RMD, it doesn't affect you?

No. The 75 limit wouldn't even take effect for another decade with either version.  The House version is this:

73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030).

74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033).

75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032).


The Senate bill would simply raise the RMD age to 75 by 2032. 

[giramomma]

Apr 16, 2022 4:57:49 GMT -5 buystoys said:

I've been kind of watching it, but not that closely.  I like the RMD change.  It will give us more time to empty our IRAs into our Roths without taking a really big tax hit.  I should have started Roth conversions years ago, but that just wasn't on my radar.  Having a couple more years to do them will help.

I wish they'd increase the IRA and Roth limits.  It's really not fair to those who have no access to a 401(k) to have such low limits on what they can contribute annually. 

Google tells me that in 2020 the median household income was 67K. IRA limits are almost 10% of that if it's a single income household. Folks can save the other 5% in a taxable.

If they are a dual income household, that's 12K of IRA space..which is more than 15%. (15% of 67K is 10,050, if I'm punching numbers right on the calculator).

ETA: So, I'm thinking back to the "Die with Zero" Thread. If the argument is not to hoard money until death, it would seem to me that increasing IRA numbers would encourage hoarding money until death.

Most people would argue that saving close to 20% of your income for retirement is more than you need to do. Especially if you start at 22 and work for 40+ years.

[minnesotapaintlady]

Apr 16, 2022 10:02:14 GMT -5 giramomma said:

Apr 16, 2022 4:57:49 GMT -5 buystoys said:

I've been kind of watching it, but not that closely.  I like the RMD change.  It will give us more time to empty our IRAs into our Roths without taking a really big tax hit.  I should have started Roth conversions years ago, but that just wasn't on my radar.  Having a couple more years to do them will help.

I wish they'd increase the IRA and Roth limits.  It's really not fair to those who have no access to a 401(k) to have such low limits on what they can contribute annually. 

Google tells me that in 2020 the median household income was 67K. IRA limits are almost 10% of that if it's a single income household. Folks can save the other 5% in a taxable.

If they are a dual income household, that's 12K of IRA space..which is more than 15%. (15% of 67K is 10,050, if I'm punching numbers right on the calculator).

But, the point isn't about ability to save, the person with the 401K is allowed to shield 20,500 (or 27K if over 50) more from taxes than the person without that employer perk.  Why should tax liability be tied to where you work?  

[Deleted]

Apr 16, 2022 9:18:13 GMT -5 minnesotapaintlady said:

I have to ask though, if you're worried about RMD's why are you digging into post-tax savings now instead of eroding the pre-tax balance before they kick in?  

Because that's what "everybody" says to do- go for the after-tax first. I once asked my brother, a retired tax accountant, if I could find a tax accountant wo would just look over my portfolio and make recommendations about investments, withdrawals, etc. to legally minimize taxes. He said they're hard to find and very expensive. I once asked a friend who owns his own CPA firm about this and the first thing they wanted to do was charge $1,000 to run a Monte Carlo simulation I already get from UBS. No, thanks.

Apr 16, 2022 9:28:23 GMT -5 minnesotapaintlady said:

]But what would your account balance be had you gone all post-tax?  I have been contributing to my Roth IRA for the past 15 years and it has been 100% funded by tax savings. I literally take my refund every year and send it directly to Vanguard.  It's currently just a hair under 20% of my entire retirement account balance or 4X my annual income and is all money I would not have if I had gone post-tax for the rest.  

Ah, that's a question I can't answer even with my control-freaky data. I made 401(k) investments over almost 30 years. What taxes would I have paid on the investment income in an after-tax account over that period? No idea?

[The Walk of the Penguin Mich]

Apr 16, 2022 10:06:23 GMT -5 @athena53 said:

Apr 16, 2022 9:18:13 GMT -5 minnesotapaintlady said:

I have to ask though, if you're worried about RMD's why are you digging into post-tax savings now instead of eroding the pre-tax balance before they kick in?  

Because that's what "everybody" says to do- go for the after-tax first. I once asked my brother, a retired tax accountant, if I could find a tax accountant wo would just look over my portfolio and make recommendations about investments, withdrawals, etc. to legally minimize taxes. He said they're hard to find and very expensive. I once asked a friend who owns his own CPA firm about this and the first thing they wanted to do was charge $1,000 to run a Monte Carlo simulation I already get from UBS. No, thanks.

Apr 16, 2022 9:28:23 GMT -5 minnesotapaintlady said:

]But what would your account balance be had you gone all post-tax?  I have been contributing to my Roth IRA for the past 15 years and it has been 100% funded by tax savings. I literally take my refund every year and send it directly to Vanguard.  It's currently just a hair under 20% of my entire retirement account balance or 4X my annual income and is all money I would not have if I had gone post-tax for the rest.  

Ah, that's a question I can't answer even with my control-freaky data. I made 401(k) investments over almost 30 years. What taxes would I have paid on the investment income in an after-tax account over that period? No idea?

We are not doing this.  Our pre tax accounts are top heavy and we are choosing to pull from these first while only one of us (me) gets socked by IRMAA.  The next couple of years are ugly for me, but he turns 65 next year.   We have also considered what happens when RMDs decrease due to one of us dying and tried to take this into consideration too.

While TD has run the numbers every way from Sunday, but we did hire a tax guy to help us deal with the Canada income and he helped us deal with the rest too.  He didn’t just run a Monte Carlo, but verified the different strategies of drawing down.  If you want his name, PM me and I’ll get it from him.  I know it was a good chunk of change, but he had some excellent ideas for us.  After meeting with him, TD is more confident that he’s not forgotten anything.  

[Deleted]

Apr 16, 2022 11:25:17 GMT -5 The Walk of the Penguin Mich said:

While TD has run the numbers every way from Sunday, but we did hire a tax guy to help us deal with the Canada income and he helped us deal with the rest too.  He didn’t just run a Monte Carlo, but verified the different strategies of drawing down.  If you want his name, PM me and I’ll get it from him.  I know it was a good chunk of change, but he had some excellent ideas for us.  After meeting with him, TD is more confident that he’s not forgotten anything.  

Thanks- I may take you up on that at some point.

[Tiny]

Apr 16, 2022 9:43:25 GMT -5 minnesotapaintlady said:

Apr 16, 2022 9:31:16 GMT -5 ken a.k.a OMK said:

So if you are 75 yo and retired, taking SS and RMD, it doesn't affect you?

No. The 75 limit wouldn't even take effect for another decade with either version.  The House version is this:

73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030).

74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033).

75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032).


The Senate bill would simply raise the RMD age to 75 by 2032. 

Yes, I think this mainly helps out all the younger baby boomers who have really big pretax retirement savings, perhaps some pension income, and who will receive the maximum payout from SS  - it gives them more years to convert to Roths or to spend down their pretax retirement savings.   

The Pandemic  change to 72 yo  helped out an older sibling who turns 71 this year.    The change above will give him 1 additional year as well.   I believe he has been doing yearly Roth Conversions starting when he turned 68 and was taken a bit by surprised on how his up til then untapped pretax money would effect his finances.     

I'm not 100% sure of how doing Roth Conversions plays with also having to take an RMD.  But  my takeaway is that it's better to NOT have to do that if you can.   

I'm guessing that most people who will need to rely on SS  AND their 401K and/or Roth income in retirement and who will NOT  be Retirement Account Multi millionaires  will most likely be in the same or lower tax bracket as they were during their working careers.     And so their yearly withdrawal amounts will most likely be equal to or less than their RMD amounts.  (but I can still see where getting money into a Roth in the early years of retirement is a good plan...) 

[tallguy]

Apr 16, 2022 12:57:02 GMT -5 Tiny said:

Apr 16, 2022 9:43:25 GMT -5 minnesotapaintlady said:

No. The 75 limit wouldn't even take effect for another decade with either version.  The House version is this:

73 starting in 2023 (for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2030).

74 starting in 2030 (for individuals who reach age 73 after Dec. 31, 2029, and age 74 before Jan. 1, 2033).

75 starting in 2033 (for individuals who reach age 74 after Dec. 31, 2032).


The Senate bill would simply raise the RMD age to 75 by 2032. 

Yes, I think this mainly helps out all the younger baby boomers who have really big pretax retirement savings, perhaps some pension income, and who will receive the maximum payout from SS  - it gives them more years to convert to Roths or to spend down their pretax retirement savings.   

The Pandemic  change to 72 yo  helped out an older sibling who turns 71 this year.    The change above will give him 1 additional year as well.   I believe he has been doing yearly Roth Conversions starting when he turned 68 and was taken a bit by surprised on how his up til then untapped pretax money would effect his finances.     

I'm not 100% sure of how doing Roth Conversions plays with also having to take an RMD.  But  my takeaway is that it's better to NOT have to do that if you can.   

I'm guessing that most people who will need to rely on SS  AND their 401K and/or Roth income in retirement and who will NOT  be Retirement Account Multi millionaires  will most likely be in the same or lower tax bracket as they were during their working careers.     And so their yearly withdrawal amounts will most likely be equal to or less than their RMD amounts.  (but I can still see where getting money into a Roth in the early years of retirement is a good plan...) 

If you are subject to RMDs you must satisfy that requirement before doing a Roth conversion.  For example, if your RMD is $50,000 you can do Roth conversions starting with dollar 50,001.  You cannot convert the RMD itself.  That must be distributed first.

[teen persuasion]

Apr 16, 2022 10:06:18 GMT -5 minnesotapaintlady said:

Apr 16, 2022 10:02:14 GMT -5 giramomma said:

Google tells me that in 2020 the median household income was 67K. IRA limits are almost 10% of that if it's a single income household. Folks can save the other 5% in a taxable.

If they are a dual income household, that's 12K of IRA space..which is more than 15%. (15% of 67K is 10,050, if I'm punching numbers right on the calculator).

But, the point isn't about ability to save, the person with the 401K is allowed to shield 20,500 (or 27K if over 50) more from taxes than the person without that employer perk.  Why should tax liability be tied to where you work?  

This, x1000!

Plus, ability to contribute more to pre-tax retirement accounts lets you manage your AGI, for things like ACA subsidies.  DS4's employer doesn't offer health insurance or a 401k.  So I've had to crunch the numbers  to get him eligible for at least *some* subsidy by maxing a tIRA and picking an HSA eligible ACA insurance and maxing the HSA.  It's a vicious circle he's in - earn more to pay for the health insurance, shrink your subsidy and increase your taxes to boot.  He doesn't have enough tax deferred space to get his AGI to where he's eligible for the state Essential Plans.

Other big difference between IRA and 401k - for families that might be eligible for EITC, tIRA contributions can't increase your EITC, but 401k contributions can.  It's a quirk in how each is treated on the 1040 - 401k contributions are subtracted from w2 income before being reported, which flows thru to AGI, while tIRA contributions are subtracted after w2 wages are claimed.  EITC tests on both w2 wages and AGI, and you get the lower result (usually from the higher input), so 401k reducing w2 wages is optimal.  Six thousand or $12k of  tIRA contributions loses up to 21%, $1260 or $2520, compared to the same amount contributed to a 401k.  My state matches EITC at 30%, so another $378 or $756 lost.

[TheOtherMe]

One of things I absolutely hated doing was to "sell" IRAs to poor people so they would get the tax deduction and the Saver's Credit.  The problem was they inevitably came in during the year to withdraw the money, so they moved the taxes in to the next year and now owed the early withdrawal penalty.

I got called in several times because I was at the very bottom for the number of IRAs I had sold.  If I didn't think people were comprehending what I was telling them, I didn't push.  If their eyes were glazing over and I would ask about the early withdrawal penalty and they would say I hadn't told them that, I would continue.

I had one client that entire tax season that I felt good about setting up with an IRA.  He came in and that was one of the first things he said he wanted to do.  He was very aware of how they worked.  While he certainly wasn't rich, he was not in a situation to get EITC, etc. and he was saving for his retirement.  He was in his upper 20's.  I hope he has gone on to a much better job by now.  He was keeping for good track of his income and expenses and didn't lie so he could itemize deductions.  He just said I don't have enough because I don't own a house.  The best route for me is an IRA.

[minnesotapaintlady]

I switched from the 1040 EZ to 1040A in 1992 when I bought my first house.  The first year I was going to owe $400 which was a huge amount of money for me back then.  I saw the line about IRA deduction and calculated it out putting in the max (2K at the time). It went from owing $400 to just $100 and getting back some money from state.  Locking up the money for 40 years didn't seem nearly as bad as paying that extra $300!  I was hooked from there on out. 

[Rukh O'Rorke]

Apr 16, 2022 9:18:13 GMT -5 minnesotapaintlady said:

Apr 16, 2022 7:04:29 GMT -5 @athena53 said:

To answer the OP's question: I don't pay to much attention to pending legislation till it's enacted.  A lot can happen in the meantime.

I normally don't either, but this one has a lot of bipartisan support and is making a lot of traction. 

I have to ask though, if you're worried about RMD's why are you digging into post-tax savings now instead of eroding the pre-tax balance before they kick in?  

I was thinking the same thing! I must be getting smart like you.....it's rubbing off or something

[tskeeter]

Apr 16, 2022 10:06:18 GMT -5 minnesotapaintlady said:

Apr 16, 2022 10:02:14 GMT -5 giramomma said:

Google tells me that in 2020 the median household income was 67K. IRA limits are almost 10% of that if it's a single income household. Folks can save the other 5% in a taxable.

If they are a dual income household, that's 12K of IRA space..which is more than 15%. (15% of 67K is 10,050, if I'm punching numbers right on the calculator).

But, the point isn't about ability to save, the person with the 401K is allowed to shield 20,500 (or 27K if over 50) more from taxes than the person without that employer perk.  Why should tax liability be tied to where you work?  

I expect that the logic was to provide a tax advantaged way to save for “working” people.  If you don’t have a workplace savings plan, the assumption is that you’re a business owner.  So any tax advantaged savings opportunities should be limited, so you don’t have an undue advantage compared to working folks.

[Rukh O'Rorke]

Apr 16, 2022 10:06:23 GMT -5 @athena53 said:

Apr 16, 2022 9:18:13 GMT -5 minnesotapaintlady said:

I have to ask though, if you're worried about RMD's why are you digging into post-tax savings now instead of eroding the pre-tax balance before they kick in?  

Because that's what "everybody" says to do- go for the after-tax first. I once asked my brother, a retired tax accountant, if I could find a tax accountant wo would just look over my portfolio and make recommendations about investments, withdrawals, etc. to legally minimize taxes. He said they're hard to find and very expensive. I once asked a friend who owns his own CPA firm about this and the first thing they wanted to do was charge $1,000 to run a Monte Carlo simulation I already get from UBS. No, thanks.

Apr 16, 2022 9:28:23 GMT -5 minnesotapaintlady said:

]But what would your account balance be had you gone all post-tax?  I have been contributing to my Roth IRA for the past 15 years and it has been 100% funded by tax savings. I literally take my refund every year and send it directly to Vanguard.  It's currently just a hair under 20% of my entire retirement account balance or 4X my annual income and is all money I would not have if I had gone post-tax for the rest.  

Ah, that's a question I can't answer even with my control-freaky data. I made 401(k) investments over almost 30 years. What taxes would I have paid on the investment income in an after-tax account over that period? No idea?

I think we need an elaboration on "everyone", because no one here seems to have encountered that advice at all. Seems it might be very dependent on balances and AA.

[tskeeter]

Apr 16, 2022 15:36:35 GMT -5 tallguy said:

Apr 16, 2022 12:57:02 GMT -5 Tiny said:

Yes, I think this mainly helps out all the younger baby boomers who have really big pretax retirement savings, perhaps some pension income, and who will receive the maximum payout from SS  - it gives them more years to convert to Roths or to spend down their pretax retirement savings.   

The Pandemic  change to 72 yo  helped out an older sibling who turns 71 this year.    The change above will give him 1 additional year as well.   I believe he has been doing yearly Roth Conversions starting when he turned 68 and was taken a bit by surprised on how his up til then untapped pretax money would effect his finances.     

I'm not 100% sure of how doing Roth Conversions plays with also having to take an RMD.  But  my takeaway is that it's better to NOT have to do that if you can.   

I'm guessing that most people who will need to rely on SS  AND their 401K and/or Roth income in retirement and who will NOT  be Retirement Account Multi millionaires  will most likely be in the same or lower tax bracket as they were during their working careers.     And so their yearly withdrawal amounts will most likely be equal to or less than their RMD amounts.  (but I can still see where getting money into a Roth in the early years of retirement is a good plan...) 

If you are subject to RMDs you must satisfy that requirement before doing a Roth conversion.  For example, if your RMD is $50,000 you can do Roth conversions starting with dollar 50,001.  You cannot convert the RMD itself.  That must be distributed first.

Tall guy, you’re really up on the details of these transactions.  Am I right in thinking that, although you can’t use an RMD to fund a Roth account, you could use the RMD funds to pay the income taxes on a Roth conversion?

[minnesotapaintlady]

Apr 16, 2022 23:11:54 GMT -5 tskeeter said:

Apr 16, 2022 10:06:18 GMT -5 minnesotapaintlady said:

But, the point isn't about ability to save, the person with the 401K is allowed to shield 20,500 (or 27K if over 50) more from taxes than the person without that employer perk.  Why should tax liability be tied to where you work?  

I expect that the logic was to provide a tax advantaged way to save for “working” people.  If you don’t have a workplace savings plan, the assumption is that you’re a business owner.  So any tax advantaged savings opportunities should be limited, so you don’t have an undue advantage compared to working folks.

But lots of companies don't have 401Ks. My ex didn't have one at either of the jobs he worked at while we were married (small tool and die companies with less than 50 employees)  (or they're so ridiculously awful in what they offer for investments in regards to fees that they're hardly worth it). 

As for business owners and self-employed.  They can also have a SEP IRA in addition to the Traditional/Roth options and contribute 25% of their earnings up to 58K/year.  

[tallguy]

Apr 16, 2022 23:24:12 GMT -5 tskeeter said:

Apr 16, 2022 15:36:35 GMT -5 tallguy said:

If you are subject to RMDs you must satisfy that requirement before doing a Roth conversion.  For example, if your RMD is $50,000 you can do Roth conversions starting with dollar 50,001.  You cannot convert the RMD itself.  That must be distributed first.

Tall guy, you’re really up on the details of these transactions.  Am I right in thinking that, although you can’t use an RMD to fund a Roth account, you could use the RMD funds to pay the income taxes on a Roth conversion?

As I understand your question, the answer would be yes.  It is necessary to clarify things because the terminology does have specific meaning.  You cannot convert an RMD to Roth, but it is theoretically possible to use your RMD to fund your Roth, in a manner of speaking.  To fund a Roth is generally considered to mean contributing to a Roth.  If you are subject to RMDs and you are still working, you could take the RMD late in the year and make your annual Roth contribution from those funds.  Nothing prevents you from using your distribution in that manner if you are eligible to contribute.  That is not your question, I know, but you can do that if you still have earned income for the year.  There is no age restriction or limit on Roth contributions.  Again, the terminology is important.

To answer what I think you are really asking, you can take your RMD and have a percentage withheld for taxes.  You can then do a Roth conversion after the RMD is distributed, and the monies withheld from the RMD will pay the taxes.  Having a percentage of your RMD or other distribution withheld for taxes is also a great way to avoid having to do estimated quarterly payments throughout the year.  Because any amounts withheld, whether it is taken out of your paycheck or out of a distribution, is considered to be taken evenly throughout the year, doing your RMD or other distribution even in December will protect you from either quarterly payments or underwithholding penalties as long as you withhold enough.  Does that answer what you were asking? 

[susana1954]

I guess it is just me, but I am unimpressed with the ability to delay RMDs even further.  This isn't designed to help the average worker, who will need to be withdrawing from his/her retirement accounts to live on.  

I reside in the twilight zone for withdrawals.  I have a pension and SS that equal what I earned working.  That was $60,000+, though, so not a lot of money.  My pension receives no COLA so it is already starting to erode in value.  I will need to eventually start withdrawing and probably before I am 73. I am 68 now.  

This new legislation doesn't stop me from withdrawing, of course.  But it allows the affluent to shelter their money longer and longer.  Why is that, again?  

[tallguy]

I would guess that part of the rationale is that people are living longer and that many will be working longer, particularly if part of the eventual Social Security fix involves increasing full retirement age.  Now, are those working into their 70's generally going to be the ones who have large tax-deferred balances?  Probably not, but it still makes a certain amount of sense to increase RMD age along with lifespan.  Remember also that almost all non-spouse beneficiaries of inherited IRAs now have to empty the account within ten years.  That may result in more total taxes paid if those disbursements are done while the heirs are still working and paying taxes on their own income as well.  

The parts that do help the average worker with low savings are the elimination of RMDs for those whose aggregate balance is less than $100,000 and the reduction of penalty for not taking the required minimum.  Those will help the less well-off and those who do not possess a solid financial literacy.

[minnesotapaintlady]

Apr 17, 2022 2:38:36 GMT -5 susana1954 said:

I guess it is just me, but I am unimpressed with the ability to delay RMDs even further.  This isn't designed to help the average worker, who will need to be withdrawing from his/her retirement accounts to live on.  

I reside in the twilight zone for withdrawals.  I have a pension and SS that equal what I earned working.  That was $60,000+, though, so not a lot of money.  My pension receives no COLA so it is already starting to erode in value.  I will need to eventually start withdrawing and probably before I am 73. I am 68 now.  

This new legislation doesn't stop me from withdrawing, of course.  But it allows the affluent to shelter their money longer and longer.  Why is that, again?  

I agree that RMDs aren't going to affect most people, especially with pensions going the way of the dinosaur.  But the delayed RMDs and increased catch-up are probably the only two points of this bill that people on YM would get excited about.   

The rest of the bill IS more geared towards the average worker.  Mandatory automatic enrollment in 401K with automatic upping of 1%/year up to 10%, expanded Saver's Credit (although they really need to make that one refundable to matter to many), Student Loan matching where employers can treat student loan payments as qualified contributions and match them, and making PT employees eligible if they work at least 500 hours a year for 2 years. 

[teen persuasion]

Apr 17, 2022 9:00:44 GMT -5 minnesotapaintlady said:

Apr 17, 2022 2:38:36 GMT -5 susana1954 said:

I guess it is just me, but I am unimpressed with the ability to delay RMDs even further.  This isn't designed to help the average worker, who will need to be withdrawing from his/her retirement accounts to live on.  

I reside in the twilight zone for withdrawals.  I have a pension and SS that equal what I earned working.  That was $60,000+, though, so not a lot of money.  My pension receives no COLA so it is already starting to erode in value.  I will need to eventually start withdrawing and probably before I am 73. I am 68 now.  

This new legislation doesn't stop me from withdrawing, of course.  But it allows the affluent to shelter their money longer and longer.  Why is that, again?  

I agree that RMDs aren't going to affect most people, especially with pensions going the way of the dinosaur.  But the delayed RMDs and increased catch-up are probably the only two points of this bill that people on YM would get excited about.   

The rest of the bill IS more geared towards the average worker.  Mandatory automatic enrollment in 401K with automatic upping of 1%/year up to 10%, expanded Saver's Credit (although they really need to make that one refundable to matter to many), Student Loan matching where employers can treat student loan payments as qualified contributions and match them, and making PT employees eligible if they work at least 500 hours a year for 2 years. 

Definitely need to make Saver's credit refundable.  It's almost pointless as currently implemented.

If your AGI is in range for the max tier of 50% of first $2k/person of retirement account contributions, it's impossible to owe that much in taxes, unless your contribution is very tiny.  If you contribute at least the $2k, and increase your AGI to match your tax owed to that level of credit, now you are in a lower % tier, either 20% or 10%, and the tax exceeds the credit! So maddening.

[minnesotapaintlady]

Apr 17, 2022 9:40:34 GMT -5 teen persuasion said:

Apr 17, 2022 9:00:44 GMT -5 minnesotapaintlady said:

I agree that RMDs aren't going to affect most people, especially with pensions going the way of the dinosaur.  But the delayed RMDs and increased catch-up are probably the only two points of this bill that people on YM would get excited about.   

The rest of the bill IS more geared towards the average worker.  Mandatory automatic enrollment in 401K with automatic upping of 1%/year up to 10%, expanded Saver's Credit (although they really need to make that one refundable to matter to many), Student Loan matching where employers can treat student loan payments as qualified contributions and match them, and making PT employees eligible if they work at least 500 hours a year for 2 years. 

Definitely need to make Saver's credit refundable.  It's almost pointless as currently implemented.

If your AGI is in range for the max tier of 50% of first $2k/person of retirement account contributions, it's impossible to owe that much in taxes, unless your contribution is very tiny.  If you contribute at least the $2k, and increase your AGI to match your tax owed to that level of credit, now you are in a lower % tier, either 20% or 10%, and the tax exceeds the credit! So maddening.

Yeah, it's one of those "Looks great on paper" deals, but the supposed target group doesn't really benefit from it at all.  

The house bill wipes out the 10 and 20% brackets and makes it 50% for all up to 3K of contributions instead of 2K.  This is one that I'm not nearly as confident will go through as the delayed RMDs. 

[The Walk of the Penguin Mich]

Apr 16, 2022 23:18:21 GMT -5 Rukh O'Rorke said:

Apr 16, 2022 10:06:23 GMT -5 @athena53 said:

Because that's what "everybody" says to do- go for the after-tax first. I once asked my brother, a retired tax accountant, if I could find a tax accountant wo would just look over my portfolio and make recommendations about investments, withdrawals, etc. to legally minimize taxes. He said they're hard to find and very expensive. I once asked a friend who owns his own CPA firm about this and the first thing they wanted to do was charge $1,000 to run a Monte Carlo simulation I already get from UBS. No, thanks.

Ah, that's a question I can't answer even with my control-freaky data. I made 401(k) investments over almost 30 years. What taxes would I have paid on the investment income in an after-tax account over that period? No idea?

I think we need an elaboration on "everyone", because no one here seems to have encountered that advice at all. Seems it might be very dependent on balances and AA.

I have heard this too on a lot of retirement boards.  The thought is to let these investments grow even larger.  However, it makes some assumptions that may or may not be true, so this really is not a ‘one size fits all’ strategy.  I don’t think there is one.