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Post by Fearchar on Apr 20, 2024 12:24:22 GMT
I've inherited both a IRA and a Roth as a non-spouse. Basically, this means I've got 10 years to empty the accounts. The inherited IRA though should be subject to RMDs; but.... For the 4th year in a row, the IRS has waived those! IRS Notice 2024-35Investment News
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Post by Fearchar on Apr 20, 2024 12:34:02 GMT
Technical issue with posting text after inserting links....
So, since I'm currently employed, I don't really want to realize a RMD unless it makes sense. If I were to take a RMD, my age and the rules are such that, there would still be excessive funds in the Inherited IRA account at the end of 10 years. Thus, this all makes tax planning more difficult.
MFJ Tax Brackets for 2024 0 $23,200 10% $23,201 $94,300 12% $94,301 $201,050 22% $201,051 $383,900 24% $383,901 $487,450 32% $487,451 $731,200 35% $731,201+ 37%
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Post by anitya on Apr 20, 2024 19:50:21 GMT
Fearchar, The following may be controversial but worth proposing to your Congressman. You can run the numbers first. Unless a person untimely passes away, theoretically there should not be any meaningful amount left in an IRA. So, there should be 2 changes to the rules: Increase the annual RMD amounts and / or Tax the inherited IRA upon passing at the highest marginal rate the year before their passing. Under this scheme, the person inheriting receives the money in a taxable account (and presumably currently pays tax at a higher tax rate than the deceased person) and does not have to take RMDs and pay tax at a higher rate than the deceased person’s tax rate. This person can buy an equity ETF with the inherited money and defer recognizing gains for a long time and when it is time for them to cash out, they pay capital gains tax than ordinary income tax on otherwise RMDs. Government gets more money now and the inheriting person may end up paying less tax in the long run and likely has more wealth. As you can see, I question the commonly held belief that tax deferred IRA and other retirement accounts are better than taxable accounts for everyone. Capital gains generated in these tax deferred accounts are subject to ordinary income tax upon distribution. If you are generating capital gains means you are taking risks and helping the economy with investments but no reward in IRAs.
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Post by liftlock on Apr 24, 2024 3:39:31 GMT
Fearchar,
You might consider retiring early, before the Inherited IRA must be depleted, or asking your employer to take unpaid time off from work. Then use the inherited IRA to fund the loss of income. Otherwise, consider smoothing your income over the remaining 10 year depletion period.
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Post by mnfish on Apr 24, 2024 13:16:50 GMT
from a MStar article The IRS admitted that the language in Secure Act 1.0 did not clearly explain the exceptions, where the following beneficiaries must take annual RMDs: A designated beneficiary (who is not an eligible designated beneficiary) who inherited a retirement account from someone who was already taking RMDs because they died on or after their required beginning date. A successor beneficiary who inherited an IRA from a primary beneficiary, where the primary beneficiary was taking life expectancy distributions. As a result of this confusion, the IRS waived the excise taxes for these two classes of beneficiaries; first for 2021 and 2022, then extended to 2023, and finally, 2024. Had these been waivers of RMDs, the 10 years would have been extended to 14 years because those four years would not have been counted. However, because only the excise tax was waived, beneficiaries still have only 10 years to fully distribute their inherited account if they fall under either of these two classes of beneficiaries. Year one of the 10-year period is the year after the account was inherited. None of this applies to me as my brother passed in 2012, but I'm confused. Is the RMD waived or just the excise tax for no distribution? Now, you have to empty the IRA in 9 years? Fearchar
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Post by liftlock on Apr 24, 2024 21:07:37 GMT
However, because only the excise tax was waived, beneficiaries still have only 10 years to fully distribute their inherited account if they fall under either of these two classes of beneficiaries. Year one of the 10-year period is the year after the account was inherited. None of this applies to me as my brother passed in 2012, but I'm confused. Is the RMD waived or just the excise tax for no distribution? Now, you have to empty the IRA in 9 years? Fearchar www.fidelity.com/go/secure-act2-faqs
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Post by Fearchar on Apr 25, 2024 1:10:54 GMT
None of this applies to me as my brother passed in 2012, but I'm confused. Is the RMD waived or just the excise tax for no distribution? Now, you have to empty the IRA in 9 years? Fearchar My understanding is that the RMD is waived for 2024 along with the taxes that go with it. However, the account is still subject to taxes in the future. mnfish; So, are you the beneficiary of an inherited IRA from 2012? I'm no expert, but what I've read implies that IRA inherited prior to 2019 fall under a different set of rules. All these different rules of course only adds to the confusion.
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Post by mnfish on Apr 25, 2024 11:39:45 GMT
None of this applies to me as my brother passed in 2012, but I'm confused. Is the RMD waived or just the excise tax for no distribution? Now, you have to empty the IRA in 9 years? Fearchar My understanding is that the RMD is waived for 2024 along with the taxes that go with it. However, the account is still subject to taxes in the future. mnfish; So, are you the beneficiary of an inherited IRA from 2012? I'm no expert, but what I've read implies that IRA inherited prior to 2019 fall under a different set of rules. All these different rules of course only adds to the confusion. Yes, and have been taking RMDs since 2013. My 2 daughters will fall under the new rules when I pass.
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Post by Capital on Apr 25, 2024 13:51:01 GMT
My understanding is that the RMD is waived for 2024 along with the taxes that go with it. However, the account is still subject to taxes in the future. mnfish; So, are you the beneficiary of an inherited IRA from 2012? I'm no expert, but what I've read implies that IRA inherited prior to 2019 fall under a different set of rules. All these different rules of course only adds to the confusion. Yes, and have been taking RMDs since 2013. My 2 daughters will fall under the new rules when I pass. It's best (if it can be done) to gift them the money to put in their Roth IRAs. I've been doing that with my children who are just now emerging from their teens.
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Post by mnfish on Apr 25, 2024 14:52:54 GMT
Yes, and have been taking RMDs since 2013. My 2 daughters will fall under the new rules when I pass. It's best (if it can be done) to gift them the money to put in their Roth IRAs. I've been doing that with my children who are just now emerging from their teens. I have been gifting them since 2013 as well. I have been thinking I should be withdrawing from my personal TIRA instead of my taxable account to lessen the taxes on them in the future. My taxable account is about 2x the size of my TIRA. What say you (and others)? Would you say the taxes, if I draw from my TIRA, on me would be roughly equivalent to doing an annual Roth conversion of the same amount?
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Post by Capital on Apr 25, 2024 15:21:47 GMT
It's best (if it can be done) to gift them the money to put in their Roth IRAs. I've been doing that with my children who are just now emerging from their teens. I have been gifting them since 2013 as well. I have been thinking I should be withdrawing from my personal TIRA instead of my taxable account to lessen the taxes on them in the future. My taxable account is about 2x the size of my TIRA. What say you (and others)? Would you say the taxes, if I draw from my TIRA, on me would be roughly equivalent to doing an annual Roth conversion of the same amount? mnfish , I plan to work out of my Taxable IRA positions first, then my Taxable Accounts and lastly my Roth IRAs. When thinking about leaving to my heirs that is the best strategy. Any funds you leave in T-IRA gets no basis adjustment to the heirs - the basis is zero and the balance is income to them. Any funds you leave in Taxable accounts gets a basis adjustment at FMV at date of demise. Any funds you leave in Roth IRAs is non taxable, including growth for up to 10 years after date of demise.
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Post by liftlock on Apr 25, 2024 20:22:22 GMT
The taxes would be identical. Both involve taxable distributions from the T-IRA.
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Post by liftlock on Apr 25, 2024 20:34:05 GMT
"Any funds you leave in Taxable accounts gets a basis adjustment at FMY at date of demise." US Treasury securities are one exception to this. They do not pass tax free to heirs at a stepped up cost basis. Taxes are owed on the untaxed interest income when the bonds are sold.
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Post by Capital on Apr 25, 2024 20:41:00 GMT
"Any funds you leave in Taxable accounts gets a basis adjustment at FMY at date of demise." US Treasury securities are one exception to this. They do not pass tax free to heirs at a stepped up cost basis. Taxes are owed on the untaxed interest income when the bonds are sold. liftlock that is correct. Any IRD property held by the decedent does not get a step in basis at demise.
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Post by liftlock on Apr 25, 2024 21:07:55 GMT
US Treasury securities are one exception to this. They do not pass tax free to heirs at a stepped up cost basis. Taxes are owed on the untaxed interest income when the bonds are sold. liftlock that is correct. Any IRD property held by the decedent does not get a step in basis at demise. Capital, After I posted, I was trying to verify that what I wrote was correct. US Savings bonds do not get a stepped up basis, but I am now less certain about other types of US Treasuries.
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Post by anitya on Apr 25, 2024 22:51:39 GMT
US Treasury securities are one exception to this. They do not pass tax free to heirs at a stepped up cost basis. Taxes are owed on the untaxed interest income when the bonds are sold. liftlock that is correct. Any IRD property held by the decedent does not get a step in basis at demise. What is an IRD property? I am only curious, can someone share the tax rule / law on these matters?
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Post by bizman on Apr 26, 2024 5:28:27 GMT
liftlock that is correct. Any IRD property held by the decedent does not get a step in basis at demise. What is an IRD property? I am only curious, can someone share the tax rule / law on these matters? Income in Respect of Decedent. It is the income received after the date of death until the end of the calendar year, up until the estate is settled and distributed. Publication 559: See Page 13, Income in Respect of Decedent
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Post by liftlock on Apr 26, 2024 22:32:28 GMT
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