Proposed wiki page on Stretch IRA

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fyre4ce
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Proposed wiki page on Stretch IRA

Post by fyre4ce » Tue Mar 24, 2020 3:35 pm

The wiki has an article on the Stretch IRA but it's very short, just once sentence, so I'm proposing an update. In the course of recent edits on IRA and RMD pages, I realized the wiki could benefit from more content related to Stretch/Inherited IRAs, particularly with the new SECURE Act ten-year rule. Kitces has a great article on post-SECURE Act strategies; the content I write is largely consistent with that page, although I have more or less detail in certain places. I'd like to solicit feedback from the forums on this proposed expansion of the content:

https://www.bogleheads.org/wiki/User:Fy ... tretch_IRA

Thanks!

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Peculiar_Investor
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Re: Proposed wiki page on Stretch IRA

Post by Peculiar_Investor » Tue Mar 24, 2020 4:39 pm

As a Canadian I know nothing on the topic, but I do know that one of the key mantra's of Wikipedia is Be bold so why not just Go for It.
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

Alan S.
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Re: Proposed wiki page on Stretch IRA

Post by Alan S. » Tue Mar 24, 2020 5:37 pm

There are some major issues left unresolved by the Secure Act legislation involving things such as multiple beneficiaries, some of which are just DBs and some are EDBs. Another is the situation where a non DB ends up better off than a DB. The definition of what course of education a minor EDB must pursue in order to stave off the start of the 10 year rule is not known.

The IRS is going to have to produce a major update of the IRS RMD Regulations. This is somewhat urgent since most trusts drafted to secure the stretch have now been rendered useless. While these Regs would normally be on fast track, it is not clear whether the current pandemic is going to delay the Regs.

In short, any update to the wiki will have to be redone after the Regs are released. It is not so much a question of old law vs new law as it is a matter of the new law being subject to interpretation by the IRS.

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fyre4ce
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Re: Proposed wiki page on Stretch IRA

Post by fyre4ce » Tue Mar 24, 2020 6:31 pm

Alan S. wrote:
Tue Mar 24, 2020 5:37 pm
There are some major issues left unresolved by the Secure Act legislation involving things such as multiple beneficiaries, some of which are just DBs and some are EDBs. Another is the situation where a non DB ends up better off than a DB. The definition of what course of education a minor EDB must pursue in order to stave off the start of the 10 year rule is not known.

The IRS is going to have to produce a major update of the IRS RMD Regulations. This is somewhat urgent since most trusts drafted to secure the stretch have now been rendered useless. While these Regs would normally be on fast track, it is not clear whether the current pandemic is going to delay the Regs.

In short, any update to the wiki will have to be redone after the Regs are released. It is not so much a question of old law vs new law as it is a matter of the new law being subject to interpretation by the IRS.
Are you proposing that we wait until we get more guidance before making a wiki update?

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Re: Proposed wiki page on Stretch IRA

Post by Alan S. » Tue Mar 24, 2020 11:18 pm

Perhaps. Just know there are several gray areas. An update now would itself have to be updated again once the IRS Regs are issued. Another option is to update now what is known and mention the gray areas.

Natalie Choate refers to some of those in the attach January review of Secure, although the emphasis is on trusts as beneficiaries. Bruce Steiner, who posts here is the expert on trusts.

https://www.ataxplan.com/wp-content/upl ... 0-2020.pdf

is50xenough
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Re: Proposed wiki page on Stretch IRA

Post by is50xenough » Wed Mar 25, 2020 6:52 am

I would be very interested in more info, if there are additional strategies not covered. Thanks

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neurosphere
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Re: Proposed wiki page on Stretch IRA

Post by neurosphere » Wed Mar 25, 2020 7:42 am

Alan S. wrote:
Tue Mar 24, 2020 11:18 pm
Perhaps. Just know there are several gray areas. An update now would itself have to be updated again once the IRS Regs are issued. Another option is to update now what is known and mention the gray areas.
It's easy to update a wiki page when new information is available. Incremental changes are fine. The wiki can even include links to a discussion/thread of the grey areas, for example.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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fyre4ce
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Re: Proposed wiki page on Stretch IRA

Post by fyre4ce » Wed Mar 25, 2020 10:49 am

neurosphere wrote:
Wed Mar 25, 2020 7:42 am
Alan S. wrote:
Tue Mar 24, 2020 11:18 pm
Perhaps. Just know there are several gray areas. An update now would itself have to be updated again once the IRS Regs are issued. Another option is to update now what is known and mention the gray areas.
It's easy to update a wiki page when new information is available. Incremental changes are fine. The wiki can even include links to a discussion/thread of the grey areas, for example.
After further reflection I would propose we consider updating the content I wrote now, pending review and revision. The basics of the SECURE Act (ten-year rule vs. life expectancy by Table I) are pretty clearly set and I think these strategies for dealing with the shorter distribution window should be helpful immediately. When I wrote the draft I linked, I intentionally avoided some of the more nuanced topics (eg. age of majority being different in different states, exact definitions for disability, etc.) because they will apply to only a small minority of readers, and would take up a lot of space to explain fully. Future IRS guidance may fall into that category, but in any case, dealing with the new ten-year rule is an issue facing both owners and beneficiaries right now, and I hope this new content will help with that.

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fyre4ce
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Re: Proposed wiki page on Stretch IRA

Post by fyre4ce » Fri Mar 27, 2020 12:47 am

*bump*

Looking for more feedback on this topic before I publish.

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fyre4ce
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Re: Proposed wiki page on Stretch IRA

Post by fyre4ce » Sat Mar 28, 2020 7:20 pm

*bump*

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Re: Proposed wiki page on Stretch IRA

Post by fyre4ce » Wed Apr 01, 2020 6:15 pm

Asking for one final round of comments before posting. I know the Coronavirus topics are dominating the forums these days, but this is an important topic that covers a major recent change to tax law, so any time the community can spend reviewing it would be appreciated. Please share any feedback, positive or negative!

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Peter Foley
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Re: Proposed wiki page on Stretch IRA

Post by Peter Foley » Wed Apr 01, 2020 8:00 pm

I would suggest a short update making mention of the loss of the stretch provisions for many beneficiaries and the 10 year rule effective January 1, 2020. Provide a link to the SECURE Act and a note that the IRS has not published rules with respect to the SECURE Act.

Revisit in 6 months.

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Re: Proposed wiki page on Stretch IRA

Post by celia » Wed Apr 01, 2020 10:06 pm

I have a problem with the whole notion of “stretch IRA”. First, there is no such terminology recognized by the IRS, that I know of. (It is the withdrawals that are/were stretched.). Second, I personally think it makes things worse for most people since when you prolong the withdrawals, the balance compounds and just creates bigger taxes down the line. Third, there is no “design” element in the up-front financial planning since the beneficiaries usually do what is best for themselves regardless of what the “planner” was thinking. Fourth, I think most IRA owners just think of their own possible tax rates, but when they consider the beneficiaries’ tax brackets, they think about the beneficiaries current tax bracket instead of potential tax brackets at time of their own death (when the beneficiaries could themselves be retired and subject to their own RMDs). Along with this is that multiple beneficiaries can easily be in very different situations from each other.

For example, to illustrate many of these issues, look at our personal situation: DH and I were in the middle of doing Roth conversions, starting before we even retired. Our goal was to get everything converted before we started SS at age 70. Luckily, we were ahead of schedule, when DH inherited part of a large tIRA. He had to start RMDs from the Inherited IRA which cut into space we were reserving for our own Roth conversions. It was as if his IRA multiplied 5-fold but 4/5ths of it (inherited) could not be converted and if we still had it at age 70, our taxes would increase with the ‘inherited’ RMDs.

The best course of action from then on was to withdraw the MAXIMUM we could afford to pay taxes on while watching the tax brackets, then switch to QCDs at age 70.5 when we had sufficient SS income to meet our needs. Meanwhile another beneficiary who was 10 years younger was in a very different tax situation and would withdraw the ‘minimum’ as was common wisdom and will then be in a very high bracket later because he only took the minimum early on and didn’t think of thinking ahead.


Since the idea of “stretch” has been mostly eliminated by the CARES act and we will hear less about it as time goes on, I suggest we delete the ‘Stretch IRA’ wiki page and direct the link to ‘traditional IRA’, in case someone follows a link from an old thread.

Then we should modify the current new page being worked on to talk about how to decide how much to convert when in early retirement years and why you need to consider it. This would be meant to show you how to plan to prevent negative side effects for your spouse (the RMD will likely remain the same but widows file as Single so the bracket might increase), how conversions might help if you might be subject to the estate tax, how to ‘level’ your income (and taxes) over your remaining years, esp if tax rates change, minimizing IRMAA surcharges, and other things early retirees should consider. Expand the concept of “planning” to cover more than the tIRA. Maybe we could even help them figure out how much a person should withdraw from tax-deferred and from Roth after age 70 (after they’ve had a chance to do Roth conversions for several years).

What do you think?

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Peter Foley
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Re: Proposed wiki page on Stretch IRA

Post by Peter Foley » Thu Apr 02, 2020 1:55 pm

Celia, I respectfully disagree.

The use of the term is common parlance, not legal. While you and I seem to be in agreement that it was not a good idea to begin with and could distort spendable dollars inherited by some co-beneficiaries, it did exist for some beneficiaries and continues to exist for spouses, some special needs beneficiaries, and a few other groups.

For planning purposes, there is also the issue that the concept has been built into some trusts. These trusts will need to be reviewed to see if the existing language is the best approach.

Therefore I think keeping the page with a "heads up" notice about the change makes sense.

On a personal note, the instructions I had left for my wife and children included the mention of a stretch IRA possibility. That letter has been changed and now references the 10 year requirement of the new law with respect to my children as designated beneficiaries.

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