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The Secure Act (taxing your IRAs and 401ks)

bernorange

By bernorange
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bernorange

bernorange 8385

Posted
Posted

Some of you might recall some discussions on the old site circa 2008 - 2011 (when the government was frequently short of cash, hitting the debt ceiling and shutting down periodically), there were ideas being floated for govco to nationalize pensions.  That hasn't materialized (yet?), but that pot of gold is too tempting a target, so the squeeze is on...

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The Secure Act, which was signed earlier this month, changes the way beneficiaries will receive money from inherited retirement accounts, but not everyone is in danger of a big tax hit.

The new rules say beneficiaries of qualified retirement accounts, such as individual retirement accounts and 401(k) plans, need to withdraw all of the money out of those accounts within 10 years, instead of over their life expectancy as was previously allowed. There are no required minimum distributions within that time frame, but the account balance must be zero after the 10th year.

Stretching the withdrawals over the beneficiary’s life expectancy — the so-called stretch IRA provision — meant paying less in taxes, whereas the new rule threatens to result in higher tax bills, especially if the inheritor is in her peak earning years. ...

More:  https://www.marketwatch.com/story/the-secure-act-changes-the-way-people-will-inherit-money-are-you-affected-by-the-new-rules-2019-12-27?mod=home-page

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Nice Guy Eddie

Nice Guy Eddie 13723

Posted
Posted (edited)

So it impacts people that inherit a 401k or IRA from someone who passed away and the non-spouse beneficiary is expected to put the funds into a taxable account within 10 years. I don’t think the retirements accounts were ever expected to be generational retirement accounts from a tax perspective.

I didn’t  know they allow 10 years. IMHO As soon as you inherit a retirement account, it shouldn’t be considered a retirement account.

 

Edited by Nice Guy Eddie
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Brew

Brew 3049

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Posted

The only time it mattered was if the account owner had started taking RMD’s. If they had not, then the nonspouse beneficiary only had a 5 year window to withdraw the IRA and they could not use the life expectancy calculation.

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Enchubben

Enchubben 5600

Posted
Posted
12 minutes ago, Nice Guy Eddie said:

I didn’t  know they allow 10 years. IMHO As soon as you inherit a retirement account, it shouldn’t be considered a retirement account.

 

That creates an absurd result unless you plan on making 100 exceptions So a married couple retires and we have no issue with tax free withdrawalsfroma. Roth 401k until the end of time. But the working spouse dies and now the surviving spouse should have to immediately begin paying taxes because they inherited it?

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Bateshorn

Bateshorn 9989

Posted
Posted

A surviving spouse should get a tax exemption.  Any other beneficiary should not.  No taxes were paid on the money at the time of investment.  Pay your fair share.

A ROTH is till the end of time, BECAUSE TAXES HAVE ALREADY BEEN PAID ON THE ACCOUNT AT THE TIME OF INVESTMENT.

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TwiceHorn

TwiceHorn 32045

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Well, here's the thing.  OTHER inherited assets pass tax free.  It's not income to the beneficiary.  If the money were in a non-qualified account, the beneficiary could immediately withdraw with no tax consequences, except for post-inheritance growth and income.

The issue is more how long should we permit tax-free growth probably more than how fast should we tax it.

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Guest Lobo

Guest Lobo

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Posted

We basically have the framework for this already, Income with Respect to Decedecent.  IRD's.  

This of course will be posited as a way to get the rich to pay their fair share, because yeah---so much of a billionaire's wealth is transferred via inherited Roth IRA's.

Put this right up there with the private jet fuel tax.  This should net Uncle Sam a cool $300 million a year in revenue.  Should cover our monthly nut

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Nice Guy Eddie

Nice Guy Eddie 13723

Posted
Posted

 

54 minutes ago, Enchubben said:

That creates an absurd result unless you plan on making 100 exceptions So a married couple retires and we have no issue with tax free withdrawalsfroma. Roth 401k until the end of time. But the working spouse dies and now the surviving spouse should have to immediately begin paying taxes because they inherited it?

What I wrote and the proposed tax law provides for are tax exemption for the spouse.  We're basically talking about children inheriting their parent's 401k and continuing to have the 401k grow tax free.

I completely understand that people in this scenario want a lifetime tax exemption for their inherited stock "retirement" account but come on. That was never the point of retirement accounts.

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TwiceHorn

TwiceHorn 32045

Posted
Posted (edited)
14 minutes ago, Lobo said:

Are you saying in tax-deferred vehicles/defined-contribution plans or in just "estates" that fall under the threshold for death taxes?  

 

Assets pass tax free to beneficiaries/heirs in almost all cases.  Meaning there is no tax consequence for the beneficiary.

That is true whether the estate is estate tax exempt or not.

So, it's a little bit uncool to impose tax consequences on the accidental beneficiary, even if you give them plenty of money to pay the tax with.

In my particular case, I have been taking RMDs for 10 years now (geez).  The IRA generates sufficient growth/income to cover the RMD in that time period, so the "principal" is growing slightly.  But, I get income taxed on basically the annual growth.

Edited by TwiceHorn
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TexArcher

TexArcher 38889

Posted
Posted
3 hours ago, Biff Tannen said:

Put that shit in a Roth. 

Roths are great, but they have much lower contribution limits and some people make too much to qualify for a Roth at all.

I suspect this is a precursor to lowering the estate tax exemption.  If we're going to get rid of stretch IRAs because the government needs the money, there's really no reason someone should be able to inherit 10 million dollars and not pay taxes on it.

Or...  we could legalize and tax marijuana sales, online poker, sports books, and prostitution and see if just maybe it won't make the baby Jesus come back and send us all to hell...

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TexArcher

TexArcher 38889

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Posted
1 hour ago, softlynow said:

I don't care for increasing taxes on individuals. I'd rather the corporate tax capture at a rate similar to when we were actually great ('45-'65). The rate could be in the low 20's, but deductions and loss carryovers should be greatly limited.

Absolutely this.

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TwiceHorn

TwiceHorn 32045

Posted
Posted

Hopefully, rather than some big policy move, this is just closing an over-generous "loophole" in the treatment of IRAs.  As Eddie notes, there's no reason to give a retirement account favorable treatment outside the hands of a retiree and spouse.

And, I'm not sure there's a lot of value in reducing the estate tax exemption.  Although it's generous as hell, it would only hurt the near-rich.

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Bateshorn

Bateshorn 9989

Posted
Posted
20 minutes ago, TwiceHorn said:

Hopefully, rather than some big policy move, this is just closing an over-generous "loophole" in the treatment of IRAs.  As Eddie notes, there's no reason to give a retirement account favorable treatment outside the hands of a retiree and spouse.

And, I'm not sure there's a lot of value in reducing the estate tax exemption.  Although it's generous as hell, it would only hurt the near-rich.

A 10 million estate isn't near rich.  That's full blown rich.  My mom is going to leave me a big ass chunk of change, and it isn't anywhere near 10 million.

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Sbbruin

Sbbruin 22138

Posted
Posted
3 hours ago, Bateshorn said:

Personally, far too much wealth in this country passes from deceased to beneficiary tax free, but that's just like, my opinion, man.

See, this is where we differ.  Taxes has been paid by the decedent on his/her assets, retirement accounts excepted (not including ROTHs).  Taxing it again as it passes to a beneficiary is double taxation.  I think the $11mil threshold is appropriate.

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workswithseed

workswithseed 2203

Posted
Posted
1 hour ago, Bateshorn said:

A 10 million estate isn't near rich.  That's full blown rich.  My mom is going to leave me a big ass chunk of change, and it isn't anywhere near 10 million.

Are you just going to liquidate it? I don't see how owning 10mil in land makes you "rich", you either have do something on it, or sell it to actually make money off of it.

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deech

deech 2388

Posted
Posted
3 hours ago, softlynow said:

I don't care for increasing taxes on individuals. I'd rather the corporate tax capture at a rate similar to when we were actually great ('45-'65). The rate could be in the low 20's, but deductions and loss carryovers should be greatly limited.

Hahah.  Good one.

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Nice Guy Eddie

Nice Guy Eddie 13723

Posted
Posted
11 minutes ago, workswithseed said:

Are you just going to liquidate it? I don't see how owning 10mil in land makes you "rich", you either have do something on it, or sell it to actually make money off of it.

So what does owning a 10m asset make you in terms of rich vs poor?  Are you limiting your opinions to less liquid assets like land, or do you consider having 10m in the stock market also makes you non-rich?

The double taxation on estates is a legitimate argument but not on this thread. We're talking about income and stock growth that was NEVER taxed because it was in a retirement account.

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Bateshorn

Bateshorn 9989

Posted
Posted (edited)
2 hours ago, workswithseed said:

Are you just going to liquidate it? I don't see how owning 10mil in land makes you "rich", you either have do something on it, or sell it to actually make money off of it.

I’m sorry you had to liquidate 10 million in land because you couldn’t pay the taxes and now only have, say 7 million in cash.   That must be hard for you. 
 

also,  the taxes were paid by the deceased,  who could do whatever they wanted with the assets in question. The potential beneficiary does not have ultimate say over the asset in question, and this no responibility for the taxes. Once it passes to the beneficiary it becomes their assets to spend as they see fit, but also they become responsible for paying taxes on gaining control of that wealth.

Edited by Bateshorn
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workswithseed

workswithseed 2203

Posted
Posted
3 hours ago, Nice Guy Eddie said:

So what does owning a 10m asset make you in terms of rich vs poor?  Are you limiting your opinions to less liquid assets like land, or do you consider having 10m in the stock market also makes you non-rich?

The double taxation on estates is a legitimate argument but not on this thread. We're talking about income and stock growth that was NEVER taxed because it was in a retirement account.

I'd worry about the property taxes id have to start paying.

1 hour ago, Bateshorn said:

I’m sorry you had to liquidate 10 million in land because you couldn’t pay the taxes and now only have, say 7 million in cash.   That must be hard for you. 
 

also,  the taxes were paid by the deceased,  who could do whatever they wanted with the assets in question. The potential beneficiary does not have ultimate say over the asset in question, and this no responibility for the taxes. Once it passes to the beneficiary it becomes their assets to spend as they see fit, but also they become responsible for paying taxes on gaining control of that wealth.

Why is it that you can pay taxes on a car once, but a piece of land you have to keep being taxed for? Never made sense to me.

Also you're saying I could live pretty reasonably all my life with 7 million in the bank.

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TwiceHorn

TwiceHorn 32045

Posted
Posted (edited)
5 hours ago, Bateshorn said:

A 10 million estate isn't near rich.  That's full blown rich.  My mom is going to leave me a big ass chunk of change, and it isn't anywhere near 10 million.

It's a far cry from, for example, the people that Warren would wealth tax.  And someone with an estate at about $10-11MM probably has about half of it in real estate, i.e. their home, depending on where they live.

 

 

Edited by TwiceHorn
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Bateshorn

Bateshorn 9989

Posted
Posted
14 minutes ago, workswithseed said:

I'd worry about the property taxes id have to start paying.

Why is it that you can pay taxes on a car once, but a piece of land you have to keep being taxed for? Never made sense to me.

Also you're saying I could live pretty reasonably all my life with 7 million in the bank.

All I’m saying is you’d have 7 million in the bank.  It’s a you thing if you want to fucking retire on it. 

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Fudge Nuggets

Fudge Nuggets 19420

Posted
Posted
7 hours ago, Bateshorn said:

A 10 million estate isn't near rich.  That's full blown rich.  My mom is going to leave me a big ass chunk of change, and it isn't anywhere near 10 million.

Lucky you.  May dad is planning to have his 401k drawn down to $50 the day he kicks it in.  Go for it Pops, it’s your money.

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Poolflood

Poolflood 845

Posted
Posted
6 hours ago, Nice Guy Eddie said:

So what does owning a 10m asset make you in terms of rich vs poor?  Are you limiting your opinions to less liquid assets like land, or do you consider having 10m in the stock market also makes you non-rich?

The double taxation on estates is a legitimate argument but not on this thread. We're talking about income and stock growth that was NEVER taxed because it was in a retirement account.

Correct.  Was put in pre tax and gets to grow without tax but the RMD on inherited retirement amounts means it will absolutely be taxed eventually.

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atomheartbevo

atomheartbevo 90606

Posted
Posted
2 hours ago, workswithseed said:

Why is it that you can pay taxes on a car once, but a piece of land you have to keep being taxed for? Never made sense to me.

Maybe you leave your car parked in a showroom 24/7, but plenty of us use our vehicles, and we are paying taxes as a result of that.

https://comptroller.texas.gov/economy/fiscal-notes/2019/jul/motor-fuels-taxes.php

Quote

In fiscal 2018, Texas motor fuels taxes brought in $3.7 billion, about 6.6 percent of all state tax collections. In that year, they were the state’s fourth-largest source of tax revenue after the sales tax, the motor vehicle sales and rental tax and the franchise tax. 

The majority of our motor fuels tax revenue is used for transportation projects. In Texas, gasoline and diesel fuel are subject to a 20-cent tax per gallon. In addition, the federal government imposes taxes of 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel.

 

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workswithseed

workswithseed 2203

Posted
Posted (edited)
1 hour ago, atomheartbevo said:

Maybe you leave your car parked in a showroom 24/7, but plenty of us use our vehicles, and we are paying taxes as a result of that.

https://comptroller.texas.gov/economy/fiscal-notes/2019/jul/motor-fuels-taxes.php

 

I get that, but you're buying the gas itself. It'd be like paying a tax to use the graphite in your pencil after buying it.

Edited by workswithseed
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atomheartbevo

atomheartbevo 90606

Posted
Posted
12 minutes ago, workswithseed said:

I get that, but you're buying the gas itself. It'd be like paying a tax to use the graphite in your pencil after buying it.

They have to pay for the roads.  You want to drive your car, you're gonna pay that tax.  The alternative is every year, you pull in somewhere and somebody checks your odometer, compares it to last year's reading, and then charges you for the mileage.  You as a drive are going to pay for using your car.

Sparky McSkintightpants who rides a bike everywhere isn't paying that tax.

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Incredulity

Incredulity 11873

Posted
Posted
4 hours ago, workswithseed said:

I'd worry about the property taxes id have to start paying.

Why is it that you can pay taxes on a car once, but a piece of land you have to keep being taxed for? Never made sense to me.

Also you're saying I could live pretty reasonably all my life with 7 million in the bank.

Because property tax is a wealth tax, plain and simple.

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Judge Roybeanbag

Judge Roybeanbag 11860

Posted
Posted
17 minutes ago, workswithseed said:

I get that, but you're buying the gas itself. It'd be like paying a tax to use the graphite in your pencil after buying it.

Well if you can afford your own private police, fire, EMS, schools, hospitals and a large part of the infrastructure like water, sewage and electric service, and roads then you might have an argument not have to pay taxes on your property.  It’s for the public good (welfare). Now you can argue that those things aren’t being run efficiently/effectively, but that’s another matter.  

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TwiceHorn

TwiceHorn 32045

Posted
Posted

Worth noting that "secure" is an acronym for 

Setting Every Community Up for Retirement Enhancement

Which is stunningly bad.  I cant believe those cunts devote whatever time is needed to come up with that shit.  Worse than any game thread title posted in the history of the Longhorn internets.

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TwiceHorn

TwiceHorn 32045

Posted
Posted (edited)

Also, when I became aware of the estate tax, it was 55 cents on the first dollar over 600k, which is confiscatory.

I always forget that along with the enormous growth of the exemption in that 30 some odd years, the rate has dropped so that the max is 40% and the first dollar after the exemption is less than half that, so not so confiscatory.

Edited by TwiceHorn
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