House of representatives action on IRA's & RMD's

[RWG1950]

I understand the U.S. House of representatives passed legislation yesterday regarding retirement savings.
Among the proposed changes, the maximum age for IRA contributions would be removed and the RMD date would be delayed to age 72.
We'll see what the senate says. Hopefully these changes can be enacted into law.

[Rapid Robert]

Hopefully the changes won't be enacted into law. Seems just another scam, like Donor Advised Funds, which gives tax breaks to the wealthy without actually accomplishing any of the goals of the original provision. If you are still working at age 70.5 and have enough money to put into an IRA, why not just put it into a Roth? Why do you need a tax incentive to save at that age? You can still save but it's time to finally start paying the taxes you've been deferring for decades.

[kathyc2]

Oh, joy. More "simplification".

[Anarchrist]

You can still save but it's time to finally start paying the taxes you've been deferring for decades.

Exactly. How dare anyone try to save on their taxes.

[kathyc2]

Exactly. How dare anyone try to save on their taxes.

Because it's not saving, it's deferring. Rather than looking at how long it can be deferred, the goal should be to take it out when it will produce the lowest effective tax rate.

[Rapid Robert]

Exactly. How dare anyone try to save on their taxes.

As many experienced and knowledgeable tax professionals would recommend, contributing (or converting) to a Roth IRA would be a better choice, and no new legislation is needed for that.

Changing the law in the manner described is not a taxpayer taking action to "save taxes", it's just another government welfare handout to the rich. Like it or not, we still have a (nominally) progressive income tax system.

[Anarchrist]

when it will produce the lowest effective tax rate.

So in other words, it's saving.

[kathyc2]

So in other words, it's saving.

Later rather than sooner does not always produce the lowest effective tax rate. Couple examples:

It is known that TP nearing retirement will have some but not the max SS taxable during retirement years. Making more SS taxable has the effective of turning 12% rate into 22.2% (.12 x 1,85). Are they "saving" by putting more into deferred account to "save" 12% currently, only to pay 22.2% when they take it out?

Elderly TP can take significantly more than RMD and still incur no FIT. Are they "saving" by continuing to defer as long as possible when heirs will be paying 22% or more?

Defer, defer, defer has been so drummed in that many TP's and tax pros don't even look if it makes sense for individual situations.

[Anarchrist]

When it will produce the lowest effective tax rate isn't limited to deferrals. As I originally said, how dare people try to save on their taxes.

[Maude Lebowski]

When it will produce the lowest effective tax rate isn't limited to deferrals. As I originally said, how dare people try to save on their taxes.

No one's chastising anyone for trying to save on their taxes. You're missing Rapid Robert's point entirely.

When Congress passed these tax laws they expected that tax would eventually paid on IRA distributions because of RMDs and the 70 1/2 rules. The new laws, if passed, would mean forgoing that revenue stream, which means they'll have to find the money elsewhere: by adding to the deficit, cutting spending, and/or taxing or raising taxes on something/someone else.

[kathyc2]

I doubt it would be a big hit to revenue stream, but the last 2 years have shown us that no one is Congress gives a hoot about the exploding deficits.