# How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

## What does your required minimum distribution look like now and after the Stretch IRA is no more?

Those of you who have read by books know that I am a believer in paying taxes later, rather than paying taxes now. Even if you do your best to stick to that game plan, though, you will eventually have to withdraw money from your IRAs and qualified retirement plans because the IRS wants their tax money. This post goes into the nitty gritty details of how those required minimum distributions are calculated, and how you can use the current rules to your advantage.

## How do the required minimum distribution rules affect you?

As of this writing, you’re required to begin taking distributions from your IRAs by April 1st of the year following the year that you turn 70½. The IRS won’t let you decide how much you want to take out. In their Publication 590, they spell out the rules, provide factors that you have to use, and let you know how much it will cost you in penalties if you don’t do the math right. There are three tables that they have created that contain the factors you have to use. The most popular is Table III, which is for unmarried individuals and married individuals whose spouses are not more than 10 years younger. Table II is for IRA owners who have spouses who are 10 or more years younger, and Table I is for beneficiaries of IRAs. The factors in those tables are based on an average life expectancy and have nothing to do with your own health and life expectancy. So when you turn 70 ½, you have to look up the factor that you must use, divide it into your IRA balance as of December 31st, and that will give you the required minimum distribution you must take by April 1st.

If you’ve always been the kind of person who enjoys numbers, then you may find this short video interesting. It walks you through required minimum distribution calculations for your own IRA or retirement plan, as well as the calculations your beneficiaries will use after your death. It also discusses the tax implications of those distributions. The Senate Finance Committee, though, has voted 26-0 to eliminate the Stretch IRA for most beneficiaries. When it is enacted into law, your children will have to withdraw your IRA and pay tax on it within five years. Even your Roth IRAs aren’t safe – your children will have to withdraw the entire Roth account within five years of your death. And even though withdrawals from Roth accounts aren’t taxable, the greater loss is that the future growth on your IRA money will no longer be tax-free.

This is big news, and I want to make sure that you stay informed about the latest developments. Please stop back soon!

-Jim

P.S. Did you miss a video blog post? Here are the past video blog posts in this video series.

Will New Rules for Inherited IRAs Mean the Death of the Stretch IRA?

Are There Any Exceptions to the Death of the Stretch IRA Legislation?

How will your Required Minimum Distributions Work After the Death of the Stretch IRA Legislation?

Can a Charitable Remainder Unitrust (CRUT) Protect your Heirs from the Death of the Stretch IRA?

What Should You Be Doing Now to Protect your Heirs from the Death of the Stretch IRA?

How Does The New DOL Fiduciary Rule Affect You?

Why is the Death of the Stretch IRA legislation likely to pass?

The Exclusions for the Death of the Stretch IRA

Using Gifting and Life Insurance as a Solution to the Death of the Stretch IRA

Using Roth Conversions as a Possible Solution for Death of the Stretch IRA

How Lange’s Cascading Beneficiary Plan can help protect your family against the Death of the Stretch IRA

How Flexible Estate Planning Can be a Solution for Death of the Stretch IRA

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# Will New Inherited IRA Rules Wipe Out your Retirement Savings?

As election time nears, we’re being bombarded with the usual campaign promises from both sides: “Vote for me, and I will fix the country’s financial problems!” Sound familiar? Well, I listen to campaign promises with a cynical ear. Being a financial guy, I’m the one who always looks at the numbers to figure out how they’re planning to pay for all of these grand plans! So I wanted to let my readers know that there is a proposal in the works that just might allow these politicians to pay for all of these things that they promise us. There has been legislation has been written that, if passed, will funnel billions of dollars in revenue into the government coffers. It doesn’t create fair trade agreements or increase taxes on the wealthy. What it does do is accelerate the income tax on your previously untaxed IRAs and retirement accounts! And if this proposed legislation is passed, the cost to your beneficiaries could be devastating.

I am so concerned about the proposed change to the Inherited IRA rules that I have written a new book called “The Ultimate Retirement and Estate Plan for Your Million Dollar IRA.” The book discusses the government’s plan in detail and shows you why it will be so costly for your beneficiaries. Better yet, it offers solutions that you can implement if the proposed legislation is passed.

The book will be available through Amazon on Monday, November 28, 2016, and I encourage you to reserve a copy now by clicking here. I will be posting some general details on my blog about the proposed new inherited IRA rules, but you need to read the book to understand the scope of the problem.

Jim

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# Donations to Charity: Is There Still a Tax Benefit if I Donate?

Imagine 100 years in to the future: Two people are playing a word association game. One player gives the clue, “Bill Gates.” Today, you’d probably say, “The founder of Microsoft,” right? Well, I’m going to go out on a limb and suggest that, 100 years from now, Microsoft’s importance will have faded because of ever-evolving technology and many people will not recognize the company name, much less know who its founder was. However, I’m confident that Bill Gates will still be a household name. Why? It is because Bill and his wife Melinda have donated, and continue to donate, the vast majority of their immense wealth to charity. The impact of their generosity is astonishing. Thanks to their largesse, it is possible – maybe even likely – that diseases such as malaria will be eradicated within our lifetimes. Certainly, their philanthropy will save millions of lives, and improve the lives of virtually everyone on the planet. My own charitable gifting is nowhere near the scale of Bill and Melinda’s, but, even so, I can see how my donations benefit others. And it makes me happy to think that I can make someone else’s life better, even in my own small way.

The American Taxpayer Relief Act of 2012 reinstated a phase-out of itemized deductions for high income taxpayers. For those individuals, it meant that they were unable to receive the full benefit of their charitable contributions on their tax returns, and they were very unhappy. A few taxpayers didn’t care. I have a client who donates an unusually significant amount of her annual income to charity every year, and who steadfastly refused to give me a list of the donations so that I could deduct them on her tax return. She felt that it was morally wrong for her to receive any benefit from them. It was an admirable position, to be sure, but then I pointed out that the government does not do a very good job of dealing with social problems in this country. I told her that I believe that the reason charities don’t have to pay taxes is because they do a much more efficient job of distributing money and services to the needy than our government does. Under those circumstances, it seemed wasteful to me to not deduct the donations. She listened to me, and the following year presented me with hundreds of donation receipts, which I deducted on her return. She received a significant tax refund, which she promptly used to donate even more to charity!

If donating to charity is important to you, you may find it worthwhile to review the ideas discussed in Chapter 18. Many readers will be surprised to learn that there are strategies available that can give them far more bang for their charitable buck than they may have thought possible. Charitable gifting does not necessarily have to come at the expense of family members either, and in some instances it may even benefit them! Your distant dreams of establishing a scholarship fund, building a bicycle trail, or providing ongoing medical care to people in need are more achievable than you may realize. The secret is to take advantage of all of the gifting strategies that are available to you.

See you soon!

Jim

A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

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# Required Minimum Distributions: The Government Wants Their Money!

Over the years, I’ve met with many clients who have managed to accumulate small fortunes over the course of their working careers – even though their incomes were never even high enough to put them in the top two or three tax brackets. I call these clients my “savers.” These individuals seem to share one trait – mainly that they simply don’t feel the need to spend money if they don’t have to. Instead, they set the money aside for the times when they absolutely must spend and, more often than not, they spend far less than what they could.

It’s these clients who seem to suffer the greatest shock when they turn 70 ½ and are required to start withdrawing money from their qualified retirement plans. They object, “But I don’t need the money! I just want to leave it sit there in case I need it some day!” And I have to tell them that it doesn’t matter if they need the money or not. The money that they squirreled away in their retirement plans for a rainy day has grown all these years without being taxed, and now the government wants their tax money!

There’s no avoiding the Required Minimum Distribution rules on traditional retirement plans. Failure to take a distribution when required, in fact, will cost you a penaly tax of 50% on the amount not withdrawn. Individuals who hate the RMD rules and have a spiteful streak might enjoy an interesting (and legal) tip presented in Chapter 5 that allows them to take advantage of the withholdings on the distribution to wait until the very last minute to pay the IRS their due, while also avoiding a late payment penalty. They can also learn of a possible way to completely avoid tax on their Required Minimum Distributions – and also a general increase in their tax bracket – by sending their RMD direct to a charity. I encourage everyone, though, to read Chapter 5 so that you have a good understanding of the RMD rules. Later chapters address proposed legislative changes to the rules that may not strike you as being significant, and unless you have a good understanding of how they currently work.

My next post will talk about rolling your old retirement plan to an IRA. There have been a lot of changes in the laws about this, so I hope you will stop back to get a summary of what you can expect.

Jim

A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Save

# Back Door IRA, The Conclusion

Recharacterizations

Converting to a Roth IRA also comes with another very unique advantage. The IRS allows you a one-time opportunity to recharacterize or “undo” this conversion by October 15th of the following tax year. IRS publication 590 states that, “a recharacterization allows you to ‘undo’ or ‘reverse’ a rollover or conversion to a Roth IRA. To recharacterize, you generally instruct the trustee of the financial institution holding your Roth IRA to transfer the amount back to a traditional IRA (in a trustee-to-trustee or within the same trustee). If you do this by the due date for your tax return (including extensions), you can treat the contribution as made to the traditional IRA for that year (effectively ignoring the Roth IRA contribution)”. In the case of a Backdoor Roth IRA, you probably won’t think about recharacterizing. However, if you want to explore this option, we are here to help assist you, because like many of the other rules involved this can be complicated.

Conclusion

While Backdoor Roth IRAs can be beneficial to many investors, they aren’t for everyone. They come with their limitations and complications. There are precautions that need to be taken to reap the full benefits of any financial decision. This is an area where a highly informed financial advisor can help you make an educated and calculated decision. You should always consult with your financial advisor and tax professional to help avoid tax ramifications.

As always, we are here to help and can look at your specific financial situation and chart the right path for you. If you are interested in learning more about whether or not a Backdoor Roth would be right for you and your specific situation, please call us and we would be happy to discuss this with you. As always, we enjoy the opportunity to assist you in addressing your financial matters.

Complimentary Financial Check-up

If you are currently not a client of The Lange Financial Group, we would like to offer you a complimentary, one-hour, private consultation with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call 412-521-2732 or fill out our Pre-Qualification Form here.

Thank you,
James Lange