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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 76082  
Subject: Re: RMDs for Roths? Date: 3/11/2014 7:39 PM
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Thirty plus years is not the longest time period, I agree, but I am not sure that it is still "relatively new".

I guess it's all relative. I didn't even think that IRAs were available to my parents, and wasn't sure how Dad got funds in one, but I guess they were working until something like '82. Being public school employees, they had annuities via TIAA Cref, (sp?) way earlier than most had access to tax deferred funds, but no SS.

I do still think it is relatively new given that I am part of the first generation that had these features widely available from the start, and I sure as heck at 50 am not ready to push up daisies!

I am not sure that using the general rule of all funds out within five years after the year of death (and eliminating the "stretch" provisions) pulls a tool from the tool belt. All of the tax advantages for the initial account owner remain the same.

If you are disciplined and invest with a view towards minimizing taxes, a regular account can accomplish similar benefits to an IRA without the restrictions. Yes, you can't day trade in those accounts without serious tax consequences. However the step up in basis will let your kids inherit tax free, (at least at our relatively modest levels,) and you retain control over when you cash in the stocks without those pesky RMDs. Further, the capital gains are taxed preferentially rather than at regular income. I have some bias, as we had very few years where we got the tax break for putting into a TIRA, but very long ago and now those investments and those of the 401K have grown to the point where we will pay a higher tax bill if we let it ride to 70.5 and RMDs, than had we simply put it in a taxable account. And the Roth was only available to us for a few years. Yes, too much money is a fine problem to have. We worked hard for it and saved hard for it, so no apologies here.

But times have changed. So for our kids why question tax deferred accounts? 401Ks up to match, fine. Better yet, hopefully Roth 401Ks will be available to them. Roths, great. Eldest at 19 already has about $12K in his, just started Youngest's with about $600 this year. If they can't take a Roth and only qualify for TIRA without tax break? Probably not. Keep it in taxable. This was our mistake, thinking we would be able to pass it on to the next generation in a tax advantaged manner. We are stuck now, and if I don't want RMDs to the extreme, we need to convert what we can to Roth before we take SS. Hopefully all this concern is noise, and it will not be our accounts that can not be inherited as promised, or they will be grandfathered, but the writing is on the wall for our kids.

We maxed out absolutely every tax deferred account we qualified for, and put some in taxable accounts. Would tell the kids at this point that if you don't get an up front tax break for your TIRA, if you don't get match for your 401k, keep the funds in a taxable tax managed account. Inheritability was the perk that made it a probable good move without really bothering to analyze it too much. Perhaps it never was a good move. Without the bridge, way less of a good thing given the alternative of a tax managed taxable account.

All things can change. You can only work with what you have available to you. Our primary goal is spending it all, even if that means paying for our eventual grandkids' college. That would be a pleasure.

Maybe I just need to get higher maintenance and spend more. It's hard to switch gears. We expect we will probably spend more later, when kayaking out the back yard or hiking up the mountain isn't all that feasible or attractive anymore, and will be replaced with trips to Paris and river cruises through Europe. By then we will feel more secure about spending more. In the meantime, let's hope I don't whack my head on a rock when my aging eyes mistake that rock garden for a wave train, and I bounce from boulder to boulder. Been there and done that...it's less fun than it sounds.

IP
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