I am not as sympathetic as the editors of the Wall Street Journal over the alleged plight of the heirs of IRAs being induced to withdraw the proceeds more rapidly:
Under current law, a 5-year-old grandson who inherits money in an IRA can “stretch†the mandatory distributions over his lifetime. That allows for longer tax-free growth, giving legacy-minded investors a way to build family wealth. The Secure Act would require the IRA to be emptied within 10 years. This would speed up the tax liability, which could also push the bunched-up distributions into a higher tax bracket.
Maybe there’s an argument that IRAs weren’t meant to be used as vehicles for inheritance. Nevertheless they are, and the figures can be large. Mitt Romney’s retirement account made news in 2012 when financial disclosures, which specify wealth in ranges, said his IRA held between $21 million and $102 million. Those numbers were thought unusual, a result of savvy investments Mr. Romney made in Bain Capital projects.
Still, you may be surprised: Fidelity Investments says that its last census of 401(k) millionaires includes 180,000 of its account holders, along with 168,000 IRA millionaires, plus another 22,000 educational workers or nonprofit staff who are 403(b) millionaires. And that’s only Fidelity. Some 33,000 federal workers have accumulated $1 million or more in their Thrift Savings Plan accounts, which can be rolled into IRAs.
Rather than spend this on wine and cruises, some of these people may prefer to pass on as much money as possible, perhaps to help their grandchildren pay for college or starter houses. If savers spent years building up their accounts with that goal in mind, it is hardly fair to switch the rules for everybody who’s still alive six months from today.
Under present law they are able to withdraw from those erstwhile IRAs slowly rather than paying taxes on them all at once as would otherwise be the case. That’s largely welfare for the rich.
I think that IRAs need reform but I’m indifferent to these heirs. For example, I don’t think I should be required to withdraw from my IRA while I’m still working. The State of Illinois is seeing to it that the taxes I’m paying are rising faster than my income which makes it darned hard to save. I’m not poor but I’m not rich, either. If I stop working not only must we curtail our present not particularly lifestyle, I won’t be able to save. Our only luxuries are our opera subscription, the fish I buy, and the dogs. It may be that our home will become a luxury we cannot afford. Consequently, I’m working far past what most people think of as retirement age and plan to continue as long as I’m able but I see the hand writing on the wall.
Heirs should also inherit the disbursement requirements (that is, the tax attributes) in the IRA. It’s not that hard.
But you have fallen into the same trap. You want to dictate when you can withdraw, even though the withdrawal requirements of IRAs were clearly designed with tax issues in mind. That is, to make sure you pay taxes on that tax deferred money.
My IRA is the only substantial thing I can leave to my children. I want to maximize their benefit. The proposed change is yet another theft from me and mine. Try reducing the defense budget for a change.
I note again that you insist on arranging deck chairs on the Illinois-Titanic. You need to leave Illinois for your family’s sake. Some place south or west. Even Ohio would be better.
Interesting, I hadn’t heard about that.
I’m a bit surprised. I would think that IRA’s would (and should) be liquidated upon the owners death, taxed (or not) depending on the type of IRA and then the funds distributed to inheritors. It is, after all, supposed to be an individual account.
I would support the legislation. Don’t tax me, don’t tax thee, tax that fellow buried under the tree.