The budget is out. No, I’m not coming out with my personal budget. It’s a strange mix of stuff on both ends of the spectrum. And I think other people’s budgets are boring, do you really care that my daughter’s dance classes are a priority? I didn’t think so. I’m talking about the budget we should all be interested in, the U.S. Budget. It has something for everyone, and by that, I mean everyone will find something they don’t care for.
In case you can’t sleep at night, Fiscal Year 2015 Budget of the U.S. Government can be downloaded right from the White House web site. If that’s not enough, the Treasury offers an even longer (297 pages vs 218) General Explanations of the Administration’s Fiscal Year 2015 Revenue Proposals. I’m still sifting through both documents, and hoping for a Cliff Notes version that will just list the potential changes to the tax code.
Over the next few articles, I plan to highlight what I’ve found, along with comments on the proposed changes. The first –
Harmonize MRD requirements for tax-favored retirement accounts. – this proposal add an RMD to the Roth IRA account. You might know that the Traditional IRA has a provision in which Required Minimum Distributions must be taken the year after one turns 70-1/2. I found it curious that when the Roth IRA was introduced in 1998, it offered a remarkable feature, no RMDs. This created an amazing opportunity for those wishing to leave a significant sum of money to their heirs, with no income tax bill. Note – the Roth inheritance can still trigger the estate tax, but as the funds are post tax, the beneficiary can withdraw money with no income tax due. This opportunity is scaled back by this proposal, as now the Roth IRA will have a post 70-1/2 RMD for those attaining age 70-1/2 after Dec 31, 2014.
My assessment of the impact of this proposal? Minimal effect. The RMD triggers no tax, nor does it pull in other money, such as Social Security benefits to be taxed (yet). If at 71, I take my withdrawals and invest in a stock fund, I need to deal with the dividends, but the capital gain can remain deferred until I pass. On my passing, my beneficiaries get a stepped up basis, so even if we are talking say, a million dollars, a 2% dividend is $20K, and the tax on it, $4000 maximum. Not a million per year, a cumulative million dollars no longer in the Roth, but taken out over more than a decade. The average taxpayer wont lose sleep over this one.
I remember when my folks were calculating the RMD for their IRA’s. I continued to be amazed at the incredible complexity of the tax system. It’ll probably change again by the time I take my RMD’s.