[Proposed changes to 401(k) and IRAs, SECURE Act]

[kardan]

[Title was "Looks like the Stretch IRA is about to be killed", see my post below. --admin LadyGeek]

The House passed the Secure Act today which requires inherited IRAs to be distributed within 10 years (with exceptions for spouses, minor children and a few other special cases). The Senate RESA bill allows $400K (or $450K - I've seen both numbers) to be stretched, but requires any excess to be distributed within 5 years. The Senate bill has strong bi-partisan support. Worst news I've heard in a long time.

[Katietsu]

First, this is about law not yet passed. So, thread will be locked. Second, google end of the stretch IRA and you will see why any speculation is very much speculation.

[willthrill81]

Countdown to the lock in 3....2....1.....

[ModifiedDuration]

Getting in before the lock, but, yeah, this is bad news.

[Thesaints]

It is simply immoral for a Government to tax its citizens on inheritances received and lottery winnings !

[willthrill81]

Getting in before the lock, but, yeah, this is bad news.

Read the second post. It's very far from settled.

[The Wizard]

IRAs were invented to cover RETIREMENT, not general wealth building...

[kardan]

If you do a google search as recommended in the second post and actually read the articles, you will find that most expect this to become law. Already passed the House and bi-partisan support in Senate. I hope those who think this won't become law are right.

[GrowthSeeker]

Applicable to Roth also??

[The Wizard]

Applicable to Roth also??

Probably.
The idea is to get money out of sheltered accounts and into taxable accounts...

[ModifiedDuration]

Getting in before the lock, but, yeah, this is bad news.

Read the second post. It's very far from settled.

Unfortunately, is not too far from being settled. Per the Wall Street Journal’s on-line story right now, the latest news is that the Senate plans on voting on the House’s already-passed Secure Act, which appears to have a lot of bi-partisan support in the Senate.

[ModifiedDuration]

Applicable to Roth also??

Per a Forbes article, yes, applicable to Roth also.

[MnD]

Mitt Romney's kids must be bumming out......
https://www.reuters.com/article/us-usa- ... 4E20120124

[bhsince87]

Well, I never even heard of them before, so I guess I'm not going to worry much.

[oldcomputerguy]

This topic discusses pending (not yet passed) legislation, which is in violation of forum policy, and has been locked.

Unacceptable Topics:

Note that discussions of proposed laws or regulations are prohibited.

[Big Dog]

[Thread merged into here, see below. --admin LadyGeek]

since it was a bipartisan vote, hopefully the Senate picks this up quickly.

would encourage 401(k)-type plans to offer annuities, a type of insurance contract that guarantees a monthly income stream as long as a retiree lives. It also would repeal the age cap for contributing to traditional individual retirement accounts, currently 70½, and would increase the age at which savers must start taking withdrawals from 401(k)s and IRAs to 72 from 70½. Additional features benefit part-time workers, parents, home-care workers and employees at small businesses.

https://www.wsj.com/articles/house-on-t ... 1558625474

(apologize if this does not meet ToS, but the thought a change in RMDs is huge and worth monitoring.)

[yohac]

Effective 2020. DW turns 70 1/2 in November, so she must take her first RMD this year. Unclear if this law means she can skip next year.

[trueblueky]

https://www.latimes.com/business/la-fi- ... story.html

Here's another source if the WSJ paywall gets you.

For me, this would mean one more year before RMD start.

[mister_sparkle]

Another proposed change would be a shorter 10-year timeframe for RMDs on inherited IRAs except for certain beneficiaries -- minor children, etc.

I wonder if that change would affect people currently taking RMDs of inherited IRAs or if they would be grandfathered.

[samsoes]

In before the lock.

[southerndoc]

This shouldn't violate ToS since it's been passed by the House. Who knows. Politics seem to get blacklisted quickly here even when discussing monetary politics.

This is important legislation that needs to be followed. So hopefully the mods will allow it to remain.

I know a Senate legislative aid who said this will pass very easily by end of session and will become law.

[ResearchMed]

This shouldn't violate ToS since it's been passed by the House. Who knows. Politics seem to get blacklisted quickly here even when discussing monetary politics.

This is important legislation that needs to be followed. So hopefully the mods will allow it to remain.

I know a Senate legislative aid who said this will pass very easily by end of session and will become law.

And as I understand the terms here, at *that* time, it can be posted and discussed, but not while proposed/pending/etc.

"It ain't over 'til it's over", etc.

RM

[samsoes]

This shouldn't violate ToS since it's been passed by the House. Who knows. Politics seem to get blacklisted quickly here even when discussing monetary politics.

This is important legislation that needs to be followed. So hopefully the mods will allow it to remain.

I know a Senate legislative aid who said this will pass very easily by end of session and will become law.

Passed by the House but still pending by the Senate, which will likely be different in many respects. The final compromise bill, if any. bill will be even different still.

Only when a bill passed by both houses of Congress is signed into law by the president will it be eligible for discussion here.

[bryanm]

Per Rule 4a, "...discussions of proposed laws or regulations are prohibited," except that "[p]roposed regulations that are directly related to investing may be discussed if and when they are published for public comments."

Seems reasonable to say that passage by the House is "published for public comments," but I am not a mod . Interesting! I will be following the legislation.

[samsoes]

Per Rule 4a, "...discussions of proposed laws or regulations are prohibited," except that "[p]roposed regulations that are directly related to investing may be discussed if and when they are published for public comments."

Seems reasonable to say that passage by the House is "published for public comments," but I am not a mod . Interesting! I will be following the legislation.

This isn't a regulation, which are promulgated by agencies, not Congress. This is legislation, not yet a law.

[jbranx]

Topic is locked. See Forum Policies Rule 4(a) which states: Note that discussions of proposed laws or regulations are prohibited. rules#rule-4a

[NeoNeo]

[Thread merged into here, see below. --admin LadyGeek]

There is news today that could affect decision-making my Bogleheads who are stretching out an Inherited IRA, and I'd like hear from you all. The Wall Street Journal today reported on legislation under way that if passed will bring several changes to the 401k system as well as Inherited IRAs. They report: 'To help pay for the changes, the House legislation would require many people who inherit tax-advantaged retirement accounts after the end of this year to withdraw the money over a shorter time frame than many are currently allowed—specifically, they would have to drain the accounts within a decade and pay any taxes due. The bill exempts some beneficiaries, including surviving spouses and minor children. Currently, beneficiaries can often liquidate those accounts over their own lifetimes and stretch out tax payments, a technique known as the “Stretch IRA.” This change is expected to generate $16 billion in additional revenue for the government over the next decade, according to the congressional Joint Committee on Taxation.'

I assume they are referring directly to Inherited IRAs. I have one (non-spouse beneficiary) that I was planning on stretching out over my life expectancy. However, even before this news item, I read arguments here on Boglehead suggesting that it'd be better to drain the Inherited IRA if an equivalent amount were contributed (i.e. via wage withholding) to a 401k, since 401k's involve more protections. Now, with the proposed changes, it seems that Inherited IRAs will be even less valuable or worthwhile--if they are truly to be drained within a decade.

Any thoughts?

[thx1138]

Yes it refers to the inherited IRAs and those would need to be drained in 10 years with certain exceptions. But the legislation has only passed the house and forum rules don’t allow discussion of pending laws. So until it passes the senate and gets signed by the president you won’t find it being discussed on BH. Moderator will probably soon lock the thread, so don’t take it personally!

[jbranx]

{Topic is locked, discussion of proposed legislation/regulation is off topic. Forum Rules state: Note that discussions of proposed laws or regulations are prohibited. rules#rule-4a

[LadyGeek]

Here's a summary from: Political comments and proposed tax plan remain off-topic

...Speculation about future legislation is prohibited by forum policy, see Unacceptable Topics:

Politics and Religion

In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:

• Common religious expressions such as sending your prayers to an ailing member.
• Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
• Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.
• Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.

This forum is focused on investing that is directly actionable to personal investors. We don't hold debates on conjecture.

The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law.

Also, a summary of the legislative process, from: Re: Political comments and proposed tax plan remain off-topic

Here is some background info:

Tax authority comes from Title 26 of US Code - which is US law and a legislative process. See the wiki: Hierarchy of tax authority

...The bill is the first step in changing the law. See any of these links:

- The Legislative Process · House.gov
- The Legislative Process: Overview (Video) | Congress.gov | Library of Congress
- U.S. Senate: Legislative Process

Quite a bit of negotiation will be on-going until the bill becomes signed into law.

The purpose of this forum is to educate investors and provide actionable, accurate advice. Consider the primary purpose of investors here is to save for retirement. This is your life's savings.

Making a decision based on information that will change from now until the tax legislation becomes law places your life's savings at risk. In some cases, an incorrect decision can result in an unrecoverable error.

To protect investors - and even more lurkers - from making a potentially bad life changing decision, we are not permitting discussion of "proposed legislation" in this forum. Aside from the political disagreements, we are simply trying to protect investors from making a bad decision. It's no more complicated than that.

(Political discussions are not permitted either, but for the purpose of keeping discussions civil and to avoid contentious disagreements.)

With the above in mind, here is the current status: H.R.1994 - Setting Every Community Up for Retirement Enhancement Act of 2019 (passed House 5/23/2019)

When the last step has completed (Became Law), we can reopen the thread to discuss.

(Thread remains locked.)

[LadyGeek]

NeoNeo's thread has been merged into here.

Please see my above post. (Thread remains locked.)

[elainet7]

[Merged into existing locked thread - moderator prudent]

If passed will raise RMD to age 72(or higher) and limit the stretch ira to 10yrs
Any thoughts if finally passed?

[Jack FFR1846]

What's a stretch ira?

[DanMahowny]

We're not allowed to talk about pending legislation, or Tesla.

[infotrader]

[Merged into existing locked topic, see LadyGeek's post above --- moderator oldcomputerguy]

Kind of surprised to see no discussion here on this new bill yet.

Especially this:

Require inherited IRAs to be depleted within ten years. This is the provision that will pay for virtually everything else—bringing in an estimated $15.7 billion to the Treasury over 10 years. It will upend estate planning. Today IRAs can be stretched out over beneficiaries’ lifetimes, providing decades of tax-deferred (or tax-free in the case of Roth IRAs) compounding. Instead, under the SECURE Act, most IRA beneficiaries (not a spouse) would be required to deplete an inherited IRA within ten years, accelerating—and likely increasin— taxes owed and destroying creditor protection for IRAs held in trust. Anyone with an IRA payable to a trust will have to rethink their plan, Keebler says. Forbes contributor Leon LaBrecque explains how the ten-year rule could cost your kids here.

This provision will have to be reconciled with the Senate’s proposal of a five-year payout requirement for IRAs above $450,000. But be forewarned, the end of the stretch IRA is in sight.

More details:

https://www.forbes.com/sites/ashleaebel ... e9bd697d26

[LadyGeek]

I merged Big Dog's thread into the on-going discussion. The combined thread is now in the Personal Finance (Not Investing) forum (retirement planning).

See my earlier post here.

(Thread remains locked.)

[toto238]

[merged into existing thread and topic remains locked - moderator prudent]

Hi everyone. So I've been reading up on this new "Secure Act" bill that seems to have a very high likelihood of becoming law and trying to figure out how it might impact me.

http://www.ignites.com/c/2303953/281073 ... le_order=0

One thing I noticed is that new parents (through birth or adoption) are allowed to withdraw $5,000 penalty free from a 401k to help pay for child related expenses.

My question would be is there anything stopping me from using that exemption to withdraw $5000 and use it to pay down one of my student loans that's sitting at a 6+% interest rate right now? Is anyone more familiar with this law able to give specifics for exactly how that mechanic will work?

[moneyman11]

wait until actual laws are actually reconciled and passed by both chambers and then signed by the president before trying to make plans. Nobody can answer your questions accurately until then.

[RJC]

[Thread merged into here, see below. --admin LadyGeek]

From the NYTimes (June 11th):

https://www.nytimes.com/2019/06/11/opin ... sContainer

"Most importantly, the legislation would facilitate the ability of holders of 401(k)’s and I.R.A.s to use the balances in their accounts to purchase annuities that would provide a steady, predictable income from retirement until death."

Is there any situation where this can be a good thing?

RJC

[AlohaJoe]

Is there any situation where this can be a good thing?

You mean other than the obvious one about steady, predictable income until death that is talked about every single day on Bogleheads?

It is exactly the same as asking "is there any situation where a pension or Social Security can be a good thing?" Do you think the answer to that is "No, pensions and Social Security are never a good thing?"

[simplesimon]

May be a good time to become an annuities salesman.

[cuendillar]

I could see a situation where an annuity might be more prudent. For example, as people age they become more susceptible to fraud and misleading claims. This in turn leads to theft of assets, often taken from 401ks/403b/IRAs, etc. By using an annuity, a principal or caregiver could decrease the risk of this type of fraud, while also ensuring a steady, lifelong income. A recent article from Schwab has some data (FWIW) on this type of occurrence.

https://www.schwab.com/resource-center/ ... looks-like

Not a recommendation for annuities mind you, but might be a reason to consider them if you were seeking options.

[RJC]

Is there any situation where this can be a good thing?

You mean other than the obvious one about steady, predictable income until death that is talked about every single day on Bogleheads?

It is exactly the same as asking "is there any situation where a pension or Social Security can be a good thing?" Do you think the answer to that is "No, pensions and Social Security are never a good thing?"

My understanding of annuities is that it's generally a bad deal (fees, returns) compared to index fund investing. Why not just improve Social Security if a steady, predictable income is the real goal?

[azanon]

I believe discussion of proposed laws that could affect investors is prohibited here.

[rantk81]

The thing I don't understand about annuities is... The effective, inflation adjusted rate of return seems to be a rate that is lower than the dividend yield on many of the insurance company stocks that sell annuities. Whether you buy an annuity from an insurance company, or buy the stock of the insurance company, you're still exposed to the same risk of the company failing. Seems like a no-brainer to me.

[Rus In Urbe]

Oh, oops.
I removed my message which included an opinion on this topic and could be possibly read as political.
(I thought it was just logical.)

[RJC]

RJC wrote:

My understanding of annuities is that it's generally a bad deal (fees, returns) compared to index fund investing. Why not just improve Social Security if a steady, predictable income is the real goal?

What's actionable?
We should all advocate (as John Bogle did by his words and his life's work) for more consumer financial education---starting with high school.
When possible, help others understand index funds and the importance of saving.

When I looked through the article's comments section, I noticed a number of folks recommending simple index fund investing and even mentioning John Bogle!

[LongRoad]

I believe discussion of proposed laws that could affect investors is prohibited here.

Forum rules

[Rus In Urbe]

I tried to remove my comment but RJC had already copied it into the thread. What to do? Lady Geek, forgive me!

[RJC]

I believe discussion of proposed laws that could affect investors is prohibited here.

Forum rules

Good to know. Thanks.