The SECURE Act has been signed into law and it is changing retirement for us and our heirs ...

[dud]

IF you have a 401K and have named heir(s) to it, or IF you have parents/family who MIGHT be leaving you an inheritance this really affects you.

This has been passed as a benefit to future retirees. It raises the max age from 71.5 to 72 years in which you have to start taking a RMD from your 401K. It also pushes annuities HARD on the public (a bad thing). The killer for me is that IF you become deceased and leave any funds in a 401K ... the heir(s) are required to take all of the funds out within 10 years ... regardless of the tax damage. It appears that those looking out for us in Washington have decided that stretch IRAs are NOT good for the public. A stretch IRA allows an heir to continue to take distributions until their death. This is especially important for those of us leaving large sums to heirs who are unable to cope/budget their finances. Before Jan 1st, 2020, an heir could inherit a 401K and continue to draw (with hopefully lower taxes) forever. Now it is 10 years.

The gubment has to pay for the deficit somehow ... this really sucks!

The SECURE Act is changing retirement — here are the most important things to know

The new law takes effect Jan. 1 and changes some rules about retirement savings.

www.marketwatch.com

 

[Brainonska511]

his is especially important for those of us leaving large sums to heirs who are unable to cope/budget their finances. Before Jan 1st, 2020, an heir could inherit a 401K and continue to draw (with hopefully lower taxes) forever. Now it is 10 years.

From what I read, there are certain conditions under which an inherited IRA may continue to be used - minor children (then they have 10 years after hitting age 18 to withdraw the rest) and people that are disabled.

I don't necessarily have a problem with this change in the law - the heirs are effectively getting free money.

 

[deadlyapp]

I haven't done any research into it because frankly it doesn't matter to me, but is there not some way you could leave the 401k into a trust to control the disbursement over a longer period of time if you wanted to manage the tax implications of drawing down on it quickly?

 

[dud]

From what I read, there are certain conditions under which an inherited IRA may continue to be used - minor children (then they have 10 years after hitting age 18 to withdraw the rest) and people that are disabled.

I don't necessarily have a problem with this change in the law - the heirs are effectively getting free money.

Most heirs are NOT children and are greatly affected by this law. My main concern are for heirs who are disabled and cannot handle their finances. A parent COULD have put their 401K in trust so that their children could be taken care of forever. Not any more ...

 

[boomerang]

Most heirs are NOT children and are greatly affected by this law. My main concern are for heirs who are disabled and cannot handle their finances. A parent COULD have put their 401K in trust so that their children could be taken care of forever. Not any more ...

From a link within the article you linked to.

Beware, the IRS is eyeing your inherited money

One little-noticed tax grab is already on the table, and another waits in the wings.

www.marketwatch.com

To be fair, the SECURE Act’s anti-taxpayer RMD change would also not affect accounts inherited by: (1) the spouse of the deceased account owner, (2) a beneficiary who is no more than 10 years younger than the deceased account owner, (3) a minor child of the deceased account owner, or (4) a disabled or chronically-ill individual. But everybody else would get slammed by the new 10-year account liquidation requirement. So you could only keep the big Roth IRA that you inherited from good old Uncle Henry open for 10 years after his departure.

 

[allisolm]

My main concern are for heirs who are disabled and cannot handle their finances.

Well, then, you've got no worries.

"Spouses, disabled beneficiaries and others under the exception will still be allowed to take distributions over their life expectancies."

The Secure Act changes the way people will inherit money — are you hit by the new rules?

The new legislation eliminated the ‘stretch IRA’ provision, but you may not be impacted

www.marketwatch.com

 

[snoopy7548]

I don't know if I really see a problem with this. Those who have significant amounts in their 401k or IRA, even at/near retirement age, are most likely the upper-class; average Americans have shit for retirement savings. They can take the tax hit.

Is there any limit on taking Uncle Henry's big ol' Roth IRA and rolling it over into your own in order to avoid the 10-year withdrawal?

 

[brianmanahan]

i picked up a book about stretch IRAs a while back, and those things were insanely good

you could feasibly leave an IRA to your child, then they choose to disinherit it and pass it on your grandkid

thus allowing that IRA to keep money tax-deferred for a good 50 years, and subject to very low RMDs for your grandkid for another 50 years

 

[brianmanahan]

and this doesn't seem to be a big deal with roth IRAs anyway, since the withdrawals aren't taxable. so you have to stick it in a taxable account and pay cap gains and qualified dividends, whatever.

it's the big traditional IRAs that'll hurt

someone who inherits a 2$ million traditional IRA is gonna be boosting their ORDINARY income by 200$k for the next 10 years

 

[Sgt. York]

I would gladly pay the taxes on a 2 million dollar inheritance.

 

[brianmanahan]

I would gladly pay the taxes on a 2 million dollar inheritance.

but if there was a way to avoid it...

the real lucky people were the families of rich people who died in 2010, when all estate tax was repealed for one year

the estate of george steinbrenner would've had to pay at least a half a billion in taxes had he not died that year

 

[Exterous]

I'm curious how easy this is to avoid via a trust

 

[rcpratt]

Sounds good to me. Fix the estate tax while you're at it.

 

[DrMrLordX]

@dud

That's the problem you get when messing with tax-deferred investment accounts created by the gub'ment. You have to play by their rules. People in the beltway have been contemplating ways to drain retirement accounts since at least 2010. The Secure Act is likely the first salvo in that war.

I don't know if I really see a problem with this. Those who have significant amounts in their 401k or IRA, even at/near retirement age, are most likely the upper-class; average Americans have shit for retirement savings. They can take the tax hit.

Ehhh that's sort of a misconception. 401(k) and IRA accounts have contribution limits which ought to tell you right away that they weren't really designed for the "upper class". Traditionally, these accounts were designed to help the middle class to stay that way in retirement. For example, the 401(k) contribution limit for 2019 was $19,000, while Roth IRAs had a measly contribution limit of $6,000. That's chump change for the rich and ultra-rich. There are plenty of hourly employees out there making $20-$30/hr (sometimes less) with 401(k) plans plus employer match, contributing far less than that per year, who are (eventually) going to get hit by the Secure Act if they manage not to drain the whole thing in their retirement. And let's face it, lots of "working-class" people die younger anyway. Average lifespan of an American male is 73, and it's dropping. There's no provision being made here to protect smaller inheritances from these rules. And rest-assured that the ultra rich (who essentially wrote this law anyway; look who voted to pass it: everyone!) will have loopholes to avoid such problems. They'll park assets overseas or find other tax shelters.

I personally know of people making less than $60k/yr making 20% contributions to their 401(k)s since they got their jobs while young and are (rightfully) worried about their future. Those 401(k)s are in the crosshairs.

The other problem here is that most IRAs and 401(k)s are NOT in cash. They hold investment instruments. Those have to be liquidated in order to make withdrawals. Any change in the law that will force asset liquidation will eventually drag down markets and effectively tank the value of retirement accounts in the process.

Is there any limit on taking Uncle Henry's big ol' Roth IRA and rolling it over into your own in order to avoid the 10-year withdrawal?

And interesting question, but I doubt that went under the radar. The general rule is that Roths have to have been open for at least 5 years prior to death before contributions and earnings can be withdrawn tax-free by a beneficiary. That's all I know.

 

[brianmanahan]

There are plenty of hourly employees out there making $20-$30/hr (sometimes less) with 401(k) plans plus employer match, contributing far less than that per year, who are (eventually) going to get hit by the Secure Act if they manage not to drain the whole thing in their retirement.

it won't matter to them though, because they'll be dead

 

[DrMrLordX]

it won't matter to them though, because they'll be dead

Sure it will. This whole thread is about the SECURE Act making it harder for beneficiaries to receive anything from their parents/grandparents/etc. without it being taxed into oblivion. It'll matter to them right up until the day they die, knowing full well that their best efforts to provide for future generations will be hampered.

 

[allisolm]

Is there any limit on taking Uncle Henry's big ol' Roth IRA and rolling it over into your own in order to avoid the 10-year withdrawal?

Not a tax accountant, but I asked one and she said you can't rollover and inherited IRA into your own if you're not the spouse. I don't think this is changing with the new act.

"...if you’re a non-spouse inheriting an IRA (solely or when it’s left to multiple people) or a spouse who is not the sole beneficiary. In all of these instances, the IRS doesn’t allow you to roll the money from an inherited IRA into one of your existing accounts."

Inherited IRA Rules, Beneficiary Distributions - NerdWallet

An inherited IRA is an account opened for someone inherits an IRA or retirement plan from a deceased owner. Special rules exist for spouses & other beneficiaries.

www.nerdwallet.com

 

[Brainonska511]

Sure it will. This whole thread is about the SECURE Act making it harder for beneficiaries to receive anything from their parents/grandparents/etc. without it being taxed into oblivion. It'll matter to them right up until the day they die, knowing full well that their best efforts to provide for future generations will be hampered.

The beneficiaries will still have 10 years to grow the money before withdrawing it. But the bigger thing is that the beneficiaries are getting money for absolutely no work of their own, they just have to pay some taxes on it and they don't get as big of a tax benefit as they used to. I'm not exactly crying for them and their new "hardship".

If the benefactor is so concerned about potential tax consequences, they should start withdrawing more from their IRAs while they themselves are in a lower tax bracket and gift yearly amounts up to the tax-free gift limit to their heirs, which they can then invest in their own retirement funds, other tax-advantaged funds, or just general index funds.

 

[dud]

Well, then, you've got no worries.

"Spouses, disabled beneficiaries and others under the exception will still be allowed to take distributions over their life expectancies."

The Secure Act changes the way people will inherit money — are you hit by the new rules?

The new legislation eliminated the ‘stretch IRA’ provision, but you may not be impacted

www.marketwatch.com

Allisolm, suppose you had an adult child with multiple diagnoses ... yet EVERY attempt to get them classified as "disabled" by the gubment had failed? There are countless numbers of people, both disabled, partially disabled or not that need a tremendous amount of help with their finances. This act might eliminate an estate planning tool that those who are soon to bow out had planned to use to secure their financial future.

I may have failed to communicate just how damaging this act might be to some. Why would we wnat to go from having many choices ... to having no choice? I am looking at this act more as the "Insecure" act ...

 

[Brainonska511]

Not a tax accountant, but I asked one and she said you can't rollover and inherited IRA into your own if you're not the spouse. I don't think this is changing with the new act.

No, you can't roll an inherited IRA into your own account, but they basically act like IRAs (that you cannot contribute your own funds to): you can grow the principle tax free, and every year, you must take a RMD from the account. This new act is not changing existing beneficiary IRAs, only ones that would have been created if someone died after 12/31/2019.

 

[dud]

Not a tax accountant, but I asked one and she said you can't rollover and inherited IRA into your own if you're not the spouse. I don't think this is changing with the new act.

"...if you’re a non-spouse inheriting an IRA (solely or when it’s left to multiple people) or a spouse who is not the sole beneficiary. In all of these instances, the IRS doesn’t allow you to roll the money from an inherited IRA into one of your existing accounts."

Inherited IRA Rules, Beneficiary Distributions - NerdWallet

An inherited IRA is an account opened for someone inherits an IRA or retirement plan from a deceased owner. Special rules exist for spouses & other beneficiaries.

www.nerdwallet.com

This is correct as of now. I was the beneficiary of a small IRA 15 years ago. The deceased (my father), was 73 at the time of his death and was required to take an RMD. After discussing with a CPA it was determined that unless I wanted to take the entire IRA as income for that year (I did not), I could roll the funds into a beneficiary IRA account. There are limitations to a BIRA: Yo ucan make no contributions to it. If the deceased was taking a RMD ... the beneficiary must also do so.

 

[kranky]

I don't blame anyone for having planned to leave large IRA balances upon death for their children but to me this new law is more of a "plug a loophole" thing. IRAs were always intended for retirement savings for one person (hence the "I" for Individual in the name) or their spouse. IRAs allow tax-deductible saving + tax-deferred growth, with the idea you would withdraw in retirement at very low tax rates. The stretch IRA to me seemed at odds with the original idea anyway.

And there were opportunties for the wealthier folks to stuff tons of money into an IRA. Self-employed people could conceivably put $55K into their 401k, and another $25K into an IRA. And a 401k can be rolled over into an IRA. Imagine a long working career with investments that worked out well, you could end up with many millions.

It's been reported Mitt Romney has $100m in his IRA (not a political comment, just a well-known example).

Some very wealthy peoples' offspring are no doubt sad about the end of the stretch IRA.

 

[brianmanahan]

IRAs were always intended for retirement savings for one person (hence the "I" for Individual in the name) or their spouse.

agreed, that was my take as well.

some people were lucky enough to use it but i didn't expected it to last.

washington was talking about eliminating stretch IRAs several years ago, but that change somehow got axed at the last minute.

 

[brianmanahan]

Self-employed people could conceivably put $55K into their 401k, and another $25K into an IRA.

that's still possible AFAIK. i plan to load up my roth IRA via the mega backdoor for as long as possible. it raises the contribution limit from 6$k a year to like 30-35$k.

doing that in a roth will at least make the 10-year distributions non-taxable

 

[brianmanahan]

i think the takeaway here is that roth IRAs/401ks are even more valuable now for managing taxes in the future

at the beginning of retirement, i plan to fill up the first couple tax brackets with roth conversions