I’d say that guessing on the tax rates is fair game here. Pros/cons speculation problem better on Political forums.
Hope not. Hopefully, the interest payments will pinch them into action.
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How about this for discussion:
How would expiration of TCJA impact your finances in retirement?
In my case it would have adverse impact because:
- my personal deduction exceeds my deductions
- Tax rates would go up
- assuming significant market growth, reduction in inheritance tax limit would impact my heirs
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Just to clarify, the TCJA is scheduled to expire at the end of 2025, not 2024.
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Wow! Thanks for the correction. I’ve been making plans based on an erroneous assumption.
Our overall tax burden went down due to TCJA because the 20% deduction for self employed and real estate enterprises more than offset the SALT limitation. Plus it “fixed” the AMT so that we didn’t get hit by it.
My SE wife has since retired, AMT wouldn’t be an issue any more, and the biggest thing that impacts us now is the ACA subsidy enhancement in the IFA of 2021 that ended the subsidy cliff. I think that also expires after 2025.
So who knows if we will be better off or not when the TCJA sunsets.
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I think the expiration of the TCJA “tax cuts” will help us. We were socked by the SALT limitations, and now since our pensions are less than half of our salaries, I think the expiration should help us. Likely we will have 45-50K worth of deductions, so that seems like it would more than make up for a higher tax rate. Unless we have to withdraw much from our 401Ks, though.
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For people whose spouses predecease them, they might consider an assumed IRA vs an inherited IRA. You just combine your spouses IRA with your own, and take out the normal RMDs for your age, there is no ten year restriction for surviving spouses, and the RMDs are based upon your age, not your spouses. My mother did this, with advice from her financial advisor. Simple to do, and sometimes the best choice.
Also, for those people who have a low tax rate and extra money in the bank, I see no good reason to not convert enough funds to a Roth (while remaining in a low tax bracket). Whether it’s for yourself or your heirs in the future, who knows? If you end up needing those funds, it sure is better to access it with zero taxes as opposed to God knows what tax rate in the future.
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I thought for spouses, the ten year rule didn’t apply. Someone…please clarify.
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I agree with you.
Exceptions to the 10-Year Rule
Some beneficiaries are exempted from the 10-year rule. This exemption includes:
- A surviving spouse
- A disabled or chronically ill person
- A child who hasn’t reached the age of majority
- A person not more than 10 years younger than the IRA account owner
Inherited IRA Rules: Non-Spouse and Spouse Beneficiaries.
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Deleting this post, because I don’t want to cause any confusion!
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I have not been involved with this since the Secure Act passed, but a friend’s father has been receiving mixed messages about his wife’s IRA after her recent passing so I am curious to hear if anyone has handled this.
I remember confirming that my father’s IRA had passed to my mother as a spousal IRA, but again, this all pre-dated the Secure Act.
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This entire thread shows me the value of our tax attorney and financial advisor, both worth every penny.
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I’m glad you said that. It’s what I thought, but I figured I was wrong.
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I would clarify with someone…but we were told very specifically that the 10 year rule does not apply to spouses. And we were not told we needed to have any special kind of IRA.
Hope someone clarifies this.
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I inherited my husband’s IRA. I was the sole beneficiary. It was in the custody of our financial advisor. I did not have an active IRA at the time. His IRA was renamed to me.
After I retired I created an IRA from my 401k and then transferred those funds to the IRA at my FA’s firm. (For some reason, direct transfers had to be from like accounts).
The 10 year rule is specifically for non-spousal beneficiaries.
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No special IRA needed at first, but with the Secure Act, the surviving spouse has two choices: 1) combine (“assume”) decedent’s IRA with their own IRA; 2) accept decedent’s IRA as an Inherited IRA.
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Just combines the amounts into one account and Surviving Spouse continues to take RMD’s as Surviving Spouse ages.
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Have bank/brokerage retitle decedent’s IRA to an Inherited IRA. (separate account). The Inherited IRA uses a single life distribution table. RMD age distribution rules of the decedent’s age apply.
btw, you can only assume like IRA with like IRA, so for example, a traditional IRA of decedent can be only be combined with traditional IRA of surviving spouse.
Most large banks & brokerages have full knowledge of the rules for Surviving Spouses and will inquire what you wish to do when you present a death certificate. (you can even find whole write-ups on their websites)
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@bluebayou so in both cases, the ten year distribution doesn’t apply to spouses, correct?
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I don’t think there is any dispute that the 10 year rule doesn’t apply to spouses, but it seems like there are options about how you get there. I suspect that my mother’s advisor recommended the assumed IRA route, because she already had an IRA account, and this would make everything simple, just fold it into her own account and take RMDs specifically for her age (she was 11 years younger than my dad). Now she just has one account and doesn’t have to worry about taking RMD’s on two accounts. Doesn’t sound like this was an option for mominva, as she didn’t have an active IRA account.
According to a recent TD Ameritrade post, there are advantages to an assumed IRA vs designating it as an inherited one.
"What happens when you inherit an IRA from a spouse?
If you’ve inherited an IRA from your spouse, you have a choice no one else has, and the latest changes to SECURE 2.O did NOT change it. You can add the inherited IRA assets to your own IRA and potentially keep it growing, which may give you more money for retirement. Keep in mind, it has to be the same type of IRA you inherited. For example, if your spouse had a Roth IRA, you have to transfer the money into a new or existing Roth IRA in your own name.
Adding the inherited assets to your own IRA may help preserve any potential tax benefits, including the opportunity for tax-deferred (traditional) or tax-free (Roth) growth. Another reason to consider assuming the IRA is that you may be able to make additional contributions to help build your savings. When you assume IRA assets, you will start taking RMDs based on your age (either 73 as of 2023 or 75 starting in 2033). An advantage of taking RMDs from your own IRA (versus an inherited IRA) is that the RMDs will typically be smaller because of the way RMDs are calculated for IRA owners versus the way RMDs are calculated for beneficiaries."
It does sound like it can be better to be added to your own account as opposed to being a beneficiary, particularly if you’re younger than your deceased spouse.
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