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No. of Recommendations: 4
"...the elimination of the ability to pass on IRA assets to our kids to draw RMDs from greatly diminishes the value of IRAs for us. Will have to think this through and reconsider our recommendation that the boys contribute as much as they can to their IRAs/401Ks, and instead put the money in a taxable brokerage account in a tax efficient way. Since they are only dealing with Roths at this point, other than company match to 401K which is treated as a Traditional contribution, it may be less of an issue for them, but if you are a buy and hold investor, who has the discipline not to tap their retirement funds or need the lawsuit protection of the funds, I am not really convinced these accounts are now worth the restrictions and paperwork."

I really think that's an overreaction, at least to some extent. You don't want to throw out the baby with the bathwater. Especially for young people, a traditional 401(k) or similar company plans, or a traditional IRA, can be a valuable first step for retirement savings. It's a lot easier to get started on a pre-tax basis, to get that first critical mass of retirement capital, and also to earn the company match where applicable.

I suggest to take a deep breath and re-focus. A traditional IRA is designed and intended to enable YOU to accumulate funds for YOUR RETIREMENT. It was never intended to be a family wealth legacy fund. That's why RMDs were put in place to begin with.

I'll be 66 this year, so maybe I have 6 years before I make serious withdrawals from my "big" IRA (a rollover of my 401(k) plan.) I generally haven't taken money from it since my father died, shortly after I retired at 62. I inherited a substantial sum, and since then have just taken withdrawals from my regular brokerage account. I won't complain that the inheritance complicated things for me, but let's say it superseded some of my previous planning.

Among other things, I have an inherited IRA that I therefore have to take RMDs from already. One of the less desirable features of an inherited nonspousal IRA is that the RMDs come at a faster pace than a traditional IRA of your own. The annual divisor goes down by exactly 1 each year, instead of the 0.7 or 0.8 in the Uniform Table for regular taxpayers. The point is to distribute the full amount over your life expectancy, as it was at the point of inheritance. And if that goes to a 10-year required payout, the effect will be even greater, and not a optional thing, to the same extent.

So now I'm analyzing and contemplating the pros and cons of taking bigger amounts out of my inherited IRA before (now) age 72, when the RMDs on the "big IRA" will kick in. That probably sounds like it makes sense, but in the short term, I still don't like the idea of generating more taxable income than I need, when I may still be able to use IRA money to pay deductible LTC premiums and other medical expenses in the future. I still think that the double standard deduction may not be with us forever, which would probably have us deducting those items again.

Bill
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