Questions about rmd’s

[Allen Trent]

My dad retired with a ira 25 yrs ago . Started taking end’s at age 70 . He’s 91 now . His ira was $500 k in 1999 .His rmd’s big now because he’s lives far longer than the avg distribution table . Because of tremendous returns his Ira’s still near $500 k even after 21 years of distributions . My question will they force his distributions s high if he lives another 5 yrs the account goes to zero fast ? The irs wants there tax money . They dint want this passing as inheritance

PS-- when your dad 1st retired in 1998, the laws on RMDs were different. When you turned 70, they said you had 16 year life expectancy & had to take 1/16th of your money that year & then it changed by 1 each year (1/15, 1/14th) until at age 86 all of the money had to be completely emptied.

Over the years, the IRS/government changed not only the RMD tables a few times & even postponed RMDs until 72 & soon to be 75. They also lowered the amount you have to take each year & now it doesnt change by a factor of 1 each year & can last way past age 100.

Everyone praised these changes, but the IRS & government are not stupid. they realized by forcing out all the IRA money between age 70 & 86, when most seniors are in low tax brackets or 0% tax bracket, they had defacto let people save for retirement & deduct the contributions while working in higher tax brackets but then empty the accounts when in low tax brackets or 0% tax bracket. (IE-- IRS missed tax revenue when deposits were made & missed tax revenue when seniors took their RMDS)

Fast forward to today, much smaller RMDs & they dont start until age 75. This means much larger IRA balances still on the books at death & children inheriting them while still working, either in a lump sum or within 10 year timeframe as inherited IRA.

Much, much, greater tax revenues for the IRS under the current RMD tables & RBD of age 72 or 75 than when you had to empty it fast between age 70 & 86

 

[Allen Trent]

Actually 1/2 his wealth was from inheritance. He inherited a ton of land from the 50’s and 60’s . But yes he’s a big savor and is careful with his money . He likes to say he respects money .

when I was still in management & agents would take me on appointments with clients who had IRAs, Annuities with us or other companies, I would share the concepts of income taxes at death on IRA & annuities & also estate tax issues (could only pass $600k at death back in the late 1990s)

I would illustrate how they were sometimes choosing to leave 20, 30, maybe 40% to their extra beneficiary (Uncle Sam). So, if they had 3 kids, I would say when you die, your 4 beneficiaries will receive you IRA, Annuity, etc. we would then discuss topics like some products being more favorable to use to live on ( retirement accounts or annuties), but that they were sometimes terrible as leave on money to next generation. Life insurance, Roth, After tax brokerage accounts, bank money or land were better to leave because of how each was treated at death for income taxes. then, if they did have an estate tax exposure in addition, we would suggest they consult attorney to consider doing 2 trusts to double the estate tax exemption or use irrevocable trusts to own some assets/insurance to minimize their taxable estate

sometimes, to show a person how single premium life could be better for "leave on money" than a NQ annuity, I would show a $20 Bill turning into $15 by folding it to show how the IRS took taxes on the gains at death. but for the SPWL, not only would there be $20, but another $20 be added as the insurance benefit. Again, only talking about leave on money that wasnt likely to be used to live on, etc

 

[LostDollar]

Yes, per stirpes is key. If you dont have your beneficiary designation of a policy, account, annuity or trust. If it doesnt include per stirpes, it will be per capita, meaning the surviving beneficiary would receive it & not your heirs. Had my mothers IRAs just listed my sister & me as 50/50 & didnt include the per stirpes clause, my sister would have gotten 100% after I disclaimed it. No matter what property or inheritance you are disclaiming, a qualified disclaimer means you have no say in who receives it. A disclaimer is merely saying "treat me as if I already died & let the inheritance flow to the next person in line". Per stirpes "by the roots" means to let if flow to down to my next in line ancestry, etc

Thank you for taking the time to make that post. I appreciate knowing that for sure.

 

[DonP]

when I was still in management & agents would take me on appointments with clients who had IRAs, Annuities with us or other companies, I would share the concepts of income taxes at death on IRA & annuities & also estate tax issues (could only pass $600k at death back in the late 1990s)

I would illustrate how they were sometimes choosing to leave 20, 30, maybe 40% to their extra beneficiary (Uncle Sam). So, if they had 3 kids, I would say when you die, your 4 beneficiaries will receive you IRA, Annuity, etc. we would then discuss topics like some products being more favorable to use to live on ( retirement accounts or annuties), but that they were sometimes terrible as leave on money to next generation. Life insurance, Roth, After tax brokerage accounts, bank money or land were better to leave because of how each was treated at death for income taxes. then, if they did have an estate tax exposure in addition, we would suggest they consult attorney to consider doing 2 trusts to double the estate tax exemption or use irrevocable trusts to own some assets/insurance to minimize their taxable estate

sometimes, to show a person how single premium life could be better for "leave on money" than a NQ annuity, I would show a $20 Bill turning into $15 by folding it to show how the IRS took taxes on the gains at death. but for the SPWL, not only would there be $20, but another $20 be added as the insurance benefit. Again, only talking about leave on money that wasnt likely to be used to live on, etc

In 1997 my Aunt died with $5.2 million . The exemption back then was $1 million I believe . She paid federal and state taxes . It was at least $2 million . I remember the feeling of throwing up .

 

[Allen Trent]

Definitely wasnt $1M in 1997. that didnt come around until 2002

Edit--here is a graph

 

[Allen Trent]

View attachment 10144

 

[DonP]

View attachment 10145

Ok $625k . She actually died Jan 1998. My mind is foggy as it was 25 yrs ago. I know we paid over $2m taxes . I got $400k. Took 10 months for total payout . The executor her lawyer did 3 distributions . He couldn’t release all until her final income taxes were signed off on as correct by the irs

 

[Allen Trent]

Ok $625k . She actually died Jan 1998. My mind is foggy as it was 25 yrs ago. I know we paid over $2m taxes . I got $400k. Took 10 months for total payout . The executor her lawyer did 3 distributions . He couldn’t release all until her final income taxes were signed off on as correct by the irs

Yup. I saw a case one time where thd exector of a trust failed to file & process an estate tax return & had already distributed the estate the 2 beneficiaries. The IRS pursued payment from the executor personally as they were legally liable to the creditors of the estate. Sounds like yours went how it should time/process wise........even if we disagree that estate taxes should have been owed on that size estate

 

[DonP]

Yup. I saw a case one time where thd exector of a trust failed to file & process an estate tax return & had already distributed the estate the 2 beneficiaries. The IRS pursued payment from the executor personally as they were legally liable to the creditors of the estate. Sounds like yours went how it should time/process wise........even if we disagree that estate taxes should have been owed on that size estate

Im not disagreeing estate taxes weren’t due . They certainly were . But still makes you sick to give that much to the irs . But again some people don’t care what happens when they die . I liken the non caring to people with millions in checking accounts making .01 interest rate . Schwab and Vanguard both have money mkts paying over 5.2% . On $2 mil that’s $100 k a yr . That’s how banks and brokers make so much . They have 5% spread on $100’s of billions of idle money making nothing . People don’t care .