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.
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.
Whoa, Wayne, STOP!
You are making too much sense.
I've been a big believer {and user of IRAs} but my gripe has always been with the confiscation of my SS and Medicade money.
Years ago, I did a present value lump sum payment calculation using 3%, 5% and 7% as the rate of return, on my money taken by the Feds when I retired.
At 3%, I would have gotten $3.4 Million, at 5% it was a little over $5.4 Million and I didn't want to run the 7% number.
Instead, the feds "GIVE ME" a couple of grand a month and take back about 8% for medicare.
Every time I think about that theft of my money, I get pissed.
The amount of direct income, state and every other tax I've paid over a lifetime, makes me ill, but, it's still the best country in the world.
I've been all over the world and this is the best country ... ever.
Long anecdotal story warning:
I had a bunch of money in my IRA (about $350K) was over 59.5, and my wife got sick - badly sick. One kid in college, mortgage, and a second mortgage to pay junior’s tuition. The loss of her paycheck plus the medical bills was a strain. My retirement strategy was always to sell the California “mansion” and buy rental property in Texas.
Well, re-examining that strategy made me realize:
1) I needed an additional source of income - now.
2) Purchasing homes, fixing them up, and renting them in another state is a whole new business. A business I have no experience in. If I wait until I’m retired to do that, I’ll be making mistakes with no paycheck coming in. That’s the worst time to try to learn.
3). If I wait until I’m retired to pull money out of my IRA, then I need additional IRA to pay the income taxes on the money I just pulled out. If I do this while I’m employed, I can squeeze my paycheck to pay the taxes.
4) There is no such thing as retirement - only a transition to less work and less money. Plan, so that work will be what you always wanted to do!
So, my story is - if you don’t have enough money in your IRA/401K to live off the interest (and who does?), you will need to invest it to get income. That income (and SSA) is what you will live off. Transition to that business while you still have a paycheck coming in.
BTW, the love of my life survived, and is back to 95%.
“It was not intended to be rolled over into a retirement plan for future generations.”
That may have been the intention, but the law wasn’t written that way. It was about the only small break the small guy got to help out his progeny in life.
It doesn’t change the fact that those bastards have drastically scaled back the value of that break to our kids.