Roth IRA
Ric Edelman, who has a Sunday morning radio program, states that the president’s 2015 budget has a provision to make mandatory withdrawals from Roth IRAs at age 70.5 with the concomitant income taxes. Is it possible that Congress would make this ruling retroactive for those who have already paid taxes on the funds and believed that it would not have to be withdrawn? Or would those who have already funded Roths be grandfathered by the original guidelines?
Permalink Submitted by Alan - IRA critic on Tue, 2014-12-30 01:20
Roth owner RMDs have two chances of passing Congress – slim and nil. This provision was also in the 2014 administration proposal and never saw the light of day. This would also be a blatant bait and switch after the 2010 special provisons that produced more conversions than the 10 prior years combined. Many of these conversions were based on avoiding and reducing RMDs, although you should note that Roth RMDs would not be taxable because of the ordering rules on Roth distributions. I do think however that the other proposal for a 5 year rule for inherited IRAs of non spouse beneficiaries has a better chance of passing – maybe 10-15% chance.
Permalink Submitted by Mary on Thu, 2015-01-01 01:09
Thank you, Alan. I do think it would be unconscionable to require RMD’s for Inherited Roths of non-spouse beneficiaries as well since many of us invested and/or converted thinking we could pass on the already taxed funds to heirs.
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-01 02:27
Inherited Roth IRAs of non spouse beneficiaries have always been subject to RMDs, but they are life expectancy RMDs. The proposal is to shorten that to 5 years.
Permalink Submitted by Mary on Thu, 2015-01-01 16:58
Thank you again, Alan. There is a big difference between RMD’s over life expectancy and withdrawal within 5 years! The latter could create a major tax income headache for the beneficiary.
Permalink Submitted by Alan - IRA critic on Thu, 2015-01-01 18:35
Not really a direct tax problem because these distributions are typically tax free (but not always). However, continued tax free earnings potential is forfeited by the earlier distributions if that 5 year rule is made law.