Required minimum distributions have also changed for non-spousal account inheritors. Under the current law, beneficiaries who did not inherit their accounts from a husband and wife are in some cases allowed to withdraw required minimum distributions for the span of their lives, which could be a few years, or a few decades. The amount of the distribution is calculated based on a few factors, including life expectancy and beneficiary age.When you pass and your kids inherit your IRA, your kids now have only TEN YEARS to distribute the balance of the IRA pay tax on it. Previously they could spread the withdrawals out over their lifetime which might have been 20 or 40 years. Now your kids will get hit with a HUGE near-term tax hit when they inherit your IRA. The inherited IRA no longer stays tax-sheltered for 20 or 40 years.
The SECURE Act requires beneficiaries withdraw all assets of an inherited account within 10 years. There are no required minimum distributions within those 10 years, but the entire balance must be distributed after the 10th year. This change can be problematic for some beneficiaries, especially if they are in their 40s and 50s and at the peak of their earning years. Limiting the time frame in which someone can distribute money from an inherited account means potentially boosting the tax burden those distributions will cause.
This change quietly flew under the radar prior to signing by President Trump and is a royal screw-job for anybody who amassed some savings (and doesn't burn through it with healthcare and nursing home costs). This ia another one of the very few tax breaks available to middle-class Americans that has been yanked away.
So they're doing the next best thing, and taxing the survivors at an accelerated rate, because spending is going up exponentially, but revenue at most geometrically.
I had a discussion with my retirement planning folks just last week about this. It does impact retirement planning, but depending on how you have been saving, it does not have to be such a huge impact.
The big take-away is that the govt wants its tax on earnings and they want it sooner rather than later, thus the change that affects PRE-TAX retirement accounts. If you save or convert to Roth or other post-tax retirement IRA’s, etc, there is no impact.
Perhaps more importantly, the tax savings by taking the hit tax early and not using PRE-TAX retirement mechanisms is huge, like 7 to 8 figures huge over the course of a 30 year retirement. Again, it seems like a big hit to convert from non-Roth to Roth and take that tax hit now, but over time, the tax savings far outweighs (by orders of magnitude) paying the tax today and having future gains tax free.
They will NEVER allow anyone within the common “unwashed masses” to amass any true wealth of any size...whether thru an individual’s lifetime or thru their offspring’s lifetime. The “unwashed masses” are nothing but cattle to them. Cattle to do the work year after year and to be “milked” every April 15th.
It’s part of the the nasty creature from Jekyll Island’s agenda (communism), and they’re implementing it “under the radar” as best they can without being strung up for it. “Boiling the frog” so to speak, but the water is getting pretty darn hot.
The government giveth, and the government taketh away. It really regretted “allowing” us to save for retirement, and is now doing all it can to get back control over what it feels is IT’S money.
The fact is that the government is broke, and there are $5.7T ins 401K plans. NO WAY the government is not coming after that money- especially since most of the money is held byWHITE PEOPLE.
THis is absolutely true, but I’m not sure it is a bad thing.
The idea of IRAs was always a deferral of the owner’s tax liability, to be then paid back during retirement or at death.
It was not intended to be rolled over into a retirement plan for future generations.
Yes, your kids will pay taxes on it, at their rate, over a period of 10 years. But it was free money to them, and it was never taxed before.
ANd while you can’t control when you die, if you think your tax burden is lower than your kids tax burden, you can take out as much of your IRA as you want while you are alive, pay the taxes at your rates, and re-invest the money so the kids can get it without tax burdens.
I’ve been looking into converting my IRAs to Roth IRAs after I retire, over a period of years, to take the tax hit and be done with it so I don’t have to worry about taxes when I am older.
I’ve been drawing minimum distributions on an inherited IRA for over ten years. Does the new 10 year period begin now, or will I need to withdraw all of the remaining $ next year?
I have found this to be a D.C. truism.
The cuter the anacronym, the more destructive the legislation.
What I hate about these articles is that they never give the Bill number. Tried on Thomas to find it. A list of 800+ bills comes up.