UnThreaded | Threaded | Whole Thread (28) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: RMDs for Roths? Date: 3/12/2014 4:48 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
I see where you and I differ. I assume the rules will change over the course of my lifetime, and so I do my planning with the rules as they are, and adjust as time moves on and the rules change. You planned with the rules as they were, and may have thought that even if the rules changed, there might be a grandfathering of sorts, and so the rules you planned under would remain intact.

Well, as you say, you do your planning with the rules as they are. We accumulated funds with one set of rules, but will be redeeming with the expectation that there could be changes that make our 401K/TIRA/401K rollovers less attractive and more likely to be used first, contrary to standard philosophy that encourages spending from taxable funds first. So yes, it becomes more attractive to keep our taxable funds, particularly now that we are not investing as aggressively, and spend our TIRA/401K funds first.

I also don't see the problem with the kids having to pull the money out of the retirement accounts within 5 years, paying the taxes on the distribution, and leaving that money to be invested for their retirement in their own taxable accounts.

OK, but how about when compared to receiving funds in a taxable account with a step up in basis, requiring no taxes? Which would you prefer to receive...something that you are required to pay income taxes at your current rate over at most 5 years, or something that you receive free of conditions where there is no income tax?

In fact, I'd argue that this isn't all that bad since they could manage it so that they are selling when they want, and only pay the tax-advantaged capital gains tax vs. the ordinary income tax on everything.

No, they would be limited to a 5 year time frame, a time frame not of their choosing in which they could be at a much higher tax bracket than we were when we took the tax break, and they would pay ordinary income, not cap gains. Or did I miss it in the article I linked where the TIRA would now be taxed at cap gains vs income levels?

They wouldn't be locked into only using that money for their own retirement or paying a penalty plus the taxes for withdrawing early for some other expense.

Nor are they currently with an inherited IRA. Currently the IRA I inherited from Dad gives me the option of cashing it in at any time free of penalty, but subject to my income tax rate. Or I can take only the RMD until such time as I decide to take it. This will be one pool of funds in addition to the 401K that we are going to use before DH turns 59.5. Choices are being restricted with this proposal, not expanded.

I expect my kids to manage/use any money we leave them as they see fit, and do not particularly care if they only use it for one purpose, such as their own retirement. They may have other more pressing or more desirable uses for that money than to wait until they are retirement age, and I have no desire to manage their money from the grave. If they want to build a nice bonfire with it and waste it like that, then that is up to them, but they'll also have the consequences of their actions in that the money will no longer be available for some other more fruitful need.

Agreed. Not going to haunt the kids if they don't follow through with my vision. However, the more often we put forward the idea of planning for FI, whether than means retirement or retaining the ability to flip your boss the bird and walk away at any time, the more likely they will get the idea. I would much rather they receive these funds as IRAs, but am willing to simply give them the taxed fund if that is what results in better return for them, and more choices. What I don't want to do is have them inherit funds that may require a tax hit of 30+%(state included,) when I could simply give them stocks/funds with a step up in basis at death.

At some point, you have no more control, and I will probably feel better about that when the kids get older. For now, we have more teaching to do.

IP
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (28) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Economic Implications of Cuba
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement