New laws for RMD

[FelixZ441666]

The RMD's laws needs to be change NOW 

Here is my proposal to congress:

1.- Start RMD at 80-year-old for all

2.- It should be 1% taking out for all the money (tax deferred money)

3.- Eliminate the 10-year clause for the person who get the money and 1 and 2 above should apply

Why senior citizens are penalizing by the RMD system. ir seems that they want us to be bankrupt and die with no money.

THE LAW NEEDS TO BE REVISE NOW!!!

[Tonster521]

@FelixZ441666 What is the value of delaying RMDs to age 80? My guess is that you wish to delay Federal taxes. It may be that you have other income  and do not need the RMD. As I understand your 1% per year proposal, you would have to live until age 180 to withdraw your entire account (i.e., IRA, 401 K, etc.). So, it sounds like you are proposing a wealth transfer type of account that is funded with pre-tax (tax deferred) contributions. If not for the pre-tax contributions, you are proposing a cash value life insurance policy (i.e., Whole Life, Universal Life, etc.) or a non-qualified deferred annuity. I do not think the Federal Government would agree to your proposals. Especially, if I misunderstood the 1% withdrawal and you mean 1% Federal tax.

[GailL1]

DO a ROTH conversion BEFORE the age of 62 - then you are home free.  Pay your taxes then, after that both the principal and earnings grow tax free - and require NO distributions until your death.  

I converted as much as I could to a ROTH between age 59 - 62 - When I had to start withdrawing RMD from my IRA, the age was then 70.5.  Then it got changed in 2017 or 2018 to I think, 72 or 73, and the withdrawal table was also changed (reduced).  So I did get some benefit from this legislation.  It lowered the amount I was forced to take out of the Trad. IRA.

I don’t understand your comment about “being bankrupt and die with no money” - just because money leaves the IRA doesn’t mean that you have to spend it - you just move it to some other place to make more money (taxable or not - that’s an investment choice).

ONLY distributions to a designated beneficiary who is NOT an eligible designated beneficiary must be completed within 10 years of the death of the owner.  

You can’t hold on to it forever if it is a Trad IRA - it has to be taxed at some point and the government, I think, sets some pretty reasonable time periods.

SO I don’t get your point - 

Review the rules:

IRS.gov Publication 590-B. 2023 TY 

[MichaelH590218]

I agree. The whole point of tax deferred accounts is to have enough balance after 73 that you only must withdraw enough to remain in a lower tax bracket. The rest should come from a Roth and then regular accounts taxed as long term capital gains. I've used a good forecasting tool to help plan my withdrawals and predict taxes: https://dash.mygoldenhorizon.com

[FelixZ441666]

Roth conversion is a patch and not a solution 

I know its the way the government recover their taxes

I proposed to delay until 80 yr old at 1% max 

[DirkB349973]

I'm not an actuary but I assume the government wants to collect the delayed taxes before you die.

[fffred]

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@DirkB349973 wrote:

I'm not an actuary but I assume the government wants to collect the delayed taxes before you die.

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Yes, that is pretty much the case. The RMD distribution tables are based on expected longevity (including for spouse in some cases).

Edit to add:   So raising the age at which required distributions begin effectively compresses the time span over which RMDs are effective, meaning larger distributions and, consequently, higher income tax...and possibly going into the next tax rate band.

[GailL1]

1% MAX in taxes?  They deferred the income tax on the contributions at a much higher rate than that - 

For many, maybe most, they are paying taxes in their golden years at a lower rate than when they were working.  There’s the bonus.

I take out the least amount that I can for the RMD - but yes, it has started to escalate the older I get but thank goodness, I did do the ROTH conversion and at a time when it did not count for any Medicare IRMAA surcharges.

Ans the RMD tables have been redone so that my RMD has been reduced by a small amount; allowing for less tax on the RMD that I have to take out.  

If you take all or some of the amount which your get from the RMD and put it into a tax fee investment vehicle - then it is still tax free earnings.

Or better yet you can do a QCD- a Qualified Charitable Distributionand make your heart sing !

IRS.gov Qualifed Charitable Distribution 

Sorry, @FelixZ441666, your Age 80 / 1% plan is like a fantasy - dream on . . . .

[DirkB349973]

You have been saving your money tax-free and RMDs are a way for the government to recover the taxes.

[BalbonisMoleskine]

Exactly. 

A Roth isn't necessarily a safe haven, either. There's so much money in Roth accounts that eventually Congress will start taxing those distributions, such as to prop up Social Security for those who couldn't or wouldn't save.

[GailL1]

@BalbonisMoleskine 

No they cannot start taxing a ROTH account - remember we paid taxes on the principal amount that we contributed into this type of retirement savings account - pledged to grow TAX-FREE.

But what they can do is make you add the amount that you have in a ROTH account to the balance in other tax deferred retirement savings account - IRA, 401K, etc.  and then they would make you take a larger RMD out of your tax deferred retirement account yet not touching the amount in the ROTH.  

This way the government gets you to have to distribute a higher RMD amount from your tax deferred retirement accounts - they get more taxes paid because the distributed amount is higher. and it depletes the tax deferred retirement account faster.  

These would be ordinary income taxes - nothing to do with Social Security.  

[BalbonisMoleskine]

Of course Congress can start taxing Roth distributions. Congress makes the rules and has a long history of changing them when it wants more money.

Case in point: taxing SS benefits. Many people assumed that was impossible . . . until it was.

Politically it's easier to say "We need to start taxing Roth millionaires to ensure a secure, dignified retirement for those without already overstuffed pockets" than to increase the FICA rate, which will be necessary even if the income cap is raised or eliminated, per Congressional studies.

[GailL1]

The principal in a ROTH (meaning what was directly contributed) has already been taxed.

SS taxes on benefits have been around since 1983 and then more in 1992.  The philosophy here is that you nor the employer ever paid taxes on the employers matched amount.  And that is correct.

I read ALL the proposals that Congress puts forth to fix the system of Social Security fiscal balance and I have NOT seen even one that considers taxing ROTHs.

SSA.gov - Proposals to Change Social Security 

Now there are a few that would change the taxation to a higher minimum but that probably won’t go anywhere because we need to ADD and not SUBTRACT from the Trust Funds.

[BalbonisMoleskine]

"I read ALL the proposals that Congress puts forth to fix the system of Social Security fiscal balance and I have NOT seen even one that considers taxing ROTHs."

So? Do you really believe that every option has been proposed and that no more will be proffered? 

BTW, you don't need to capitalize words unnecessarily. It comes across like shouting. 

[GailL1]

@BalbonisMoleskine 

I know it has been a very long time since I had to do a payroll - but all of those retirement contributions are made after (that’s AFTER) the FICA taxes have been calculated and paid on them for Trad. IRA or ROTH.  

So since FICA (Social Security and Medicare) has already gotten it’s share of these retirement contributions we cannot tax them again for these benefits - Social Security and Medicare.

It is only the way income taxes are treated where there is a difference in ROTH and Trad IRA - ROTH income taxes are paid on the contributed amount when it is contributed.  Trad. IRA income taxes were deferred but they are taxed when the amount is distributed.

The only thing that is not taxed at the income level is the earnings in a ROTH - the pledge from the government says they grow tax free.  

[BalbonisMoleskine]

And in light of all the handwringing over SS solvency and the future of Medicare, you're still willing to bet your retirement on a government pledge? That kind of naïveté is astonishing.

[GailL1]

@BalbonisMoleskine 

YES, because it has already been taxed by FICA contributory taxes when it was 1st earned.  The “earnings” in a ROTH account aren’t earned income - yep, I am pretty confident that a ROTH will not be taxed in the way you are speaking.  

However, with that said, what they could do is to make a person with a ROTH and a Traditional IRA - add the two amount together to make for a larger Traditional IRA distribution (and more taxes to be paid). 

In this way, it does not tax the ROTH at all but it does give one a higher retirement account holding to be computed into the RMD.

That’s how they could get more taxes from us - income taxes.