Intro: Hi, I'm Ed Slott.
And I'm Jeff Levine.
And we are two guys who just love to talk about retirement and taxes.
Look, our mission is simple to educate you, the savers, so that you can make
better decisions because better decisions on the whole lead to better outcomes.
And here's how we're going to do that.
Each week, Jeff and I will debate the pros and the cons of a particular retirement
strategy or topic with the goal of helping you keep more of your hard-earned money.
Yeah, but we won't know which side of the debate we're taking until we flip a coin.
Winner of the coin flip gets to pick which side of the debate they want to
argue, and both of us will have to argue in favor of our respective positions,
whether we agree with them or not.
At the end of each debate, there's going to be one clear winner, you, a more
informed saver who can hopefully apply the merits of each side of the debate
to your own personal situation to decide what's best for you and your family.
So here we go.
Welcome to the Great Retirement Debate.
Ed Slott: Well, here we are, Jeff, Secure 2.0.
A brand new tax law, lots of provisions affecting retirement accounts.
What do you think?
Jeffrey Levine: I think it's a lot of provisions.
I think you're right.
I mean, secure Act 1.0, the, the OG version for those
young listeners out there.
Ed Slott: You know, I was calling it that, I, I wasn't calling it that.
I gotta admit somebody told me.
If you wanna sound hip at a seminar call secure the OG.
And I just used it at a seminar to say, oh, he's hip.
Jeffrey Levine: Yeah, yeah.
You know where that person got it from?
So, yeah, that, you know, that version had like a dozen provisions and we thought
it was monstrous and it, and admittedly like the death of the stretch, there
was a, a bigger deal probably than any single provision of Secure Act 2.0.
But Secure Act 2.0 has nearly 100 changes.
So many.
Ed Slott: All right, let's start with one and, uh, by the, on this podcast,
we'll get through 90 of them probably.
Jeffrey Levine: Right?
That's a good goal.
Yeah.
Actually, we're gonna do something a little bit different today given the, the
volume of the changes in the SECURE Act.
And we obviously wanna include that in, uh, you know, in our discussions here.
We're gonna break down the secure act in multiple episodes here.
We're gonna start with the R M D related provisions, and instead
of our normal pro or con, Ed, we're gonna go deal or no deal.
And we're gonna go through all the RMD provisions, but we'll flip the coin.
And you can choose, I'll, I'll flip the coin you choose, and whatever
you decide, you have to take that side for every provision, right?
So if you want deal, you gotta say everything is a big deal and explain why.
And if I, and if you want no deal, you gotta explain why
it's not really a big deal.
All right?
So let's flip the coin here.
Here we go.
Ed Slott: Remember, everybody listening, the listener, if you're
listening, you are the winner.
We, we may, we have to say, and I, I know, Jeff, you tell me not to
say it on each one, but, we may be taking sides that you hear us in
a seminar saying, never do that.
Jeffrey Levine: Sorry, pay no attention to the man behind the curtain.
All right, Ed.
Uh, you know, I, you know, we're, how many episodes in, I forgot to ask still,
What would you like heads or tails?
Ed Slott: Uh, well, uh, alright, uh, heads, I have the coin here.
Wait a minute.
I have a real coin.
Jeffrey Levine: And the answer is,
Alright, tails.
I'm gonna say it's a big deal.
I'm gonna go Big deal on this, Ed.
Ed Slott: I knew you were gonna do that cause that's the opposite approach.
And you're a good debater.
You like the opposite side.
Jeffrey Levine: I, I like it again.
Give me, gimme, gimme some meat.
Let me argue , yeah.
Ed Slott: All right, so I have.
You have deal.
I have no deal.
Jeffrey Levine: Yeah, no big deal for you.
Ed Slott: Alright, let's start right at the beginning.
The one that everybody's citing, RMDs, required minimum distributions.
The age has been increased from 72 to 73, and then way later till 75.
And you're going to say, that's a deal.
Jeffrey Levine: That's a big deal.
Of course it is.
And first off, I have to argue that.
So yeah, that's a big deal.
I mean, think about it.
If, let's say, you know, someone...
let's say average life expectancy for someone starting to take RMDs is
somewhere around, you know, 88 or so, somewhere in that range, late eighties.
If you live to to be 72, you probably live to be about, you know,
86, 87, 88, depending upon what socioeconomic factors we wanna apply.
And you're talking about limiting, you know, maybe 10% now, if you go to,
from 72 to 75, 10% of the time you're, you're, you're getting rid of RMDs.
Not only that, Ed, that's a big deal because we're talking another
year, another three years potentially for some to do tax efficient Roth
conversions to have the option.
Remember the required minimum is just that it's a minimum distribution, but
we're giving now people the option for three more years in a decade, of course.
So we've gotta wait a little bit while for that.
But already this year people have another year, from where they were previously, and
that's three years for some from where it was just a few years ago when you could
combine secure act one, which took us from 70 and a half to 72 and secure act
two, which took us now from 72 to 73.
So of course that has to be a big deal.
Ed Slott: All right.
I have to say no deal on that and especially no deal on that age 75 thing.
Uh, look at, you know, I've seen headlines.
I've seen stories that say RMD age increase to 75 in 10 years.
Who knows where anybody will be in 10 years?
So that's not even an issue.
That doesn't happen till 2033.
Now, I agree with one point that you made, sure, nobody likes
to be forced to do anything.
So the further you could push back the RMD age, even if it's one year.
That's more freedom you have to do other things, like you said, with the Roth
conversions, but one year now you have to explain to everybody the transition
from 72 to 73, you saw the confusion, uh, when it went from 70 and a half.
And by the way, the Secure Act, that was the best single part of the whole OG
Secure Act, getting rid of that half year.
People didn't know what age they were, 70 am I 71?
When am I 70 and a half?
Which table should I use?
Which age?
They didn't know what they were doing.
This went on for like 30 years.
All right, so we got rid of that.
Then it moved to 72.
But you had some problems with the transition.
Who gets 72?
And we had that half year thing, if you remember.
Jeffrey Levine: Now we're practiced at that, ed.
Now we know what to do, we've been through it once already.
. Ed Slott: Yeah.
Alright, so now people have to see, do I get 73?
All right.
So here are the rules.
If you are already at 72 already taking distributions, this doesn't apply to you.
Jeffrey Levine: No soup for you!
Ed Slott: Yeah, no soup for you.
Once you start, you can't stop.
That's kind of the theme of the IRS regulations.
Once RMDs start, start, they can't be stopped, so you don't get a, a break.
Uh, but one year after all of that one year, and the other problem I have
with this, it encourages people to procrastinate, to delay distributions.
When you are looking at the, the original SECURE Act gave us an
ending date for the beneficiaries.
Before secure, there was the stretch IRA beneficiaries could go out 20, 30,
50, 80 years for a young grandchild.
Now we know there's a finite, there's an end date.
By 10 years after death, most beneficiaries will
have to end that account.
So the shorter you make the overall window, more tax is gonna have to be
paid more of those distributions probably fall more no deal I would say for
the beneficiaries because the longer, say the parents delay because the tax
law says they can delay, uh, the more income, the more of that IRA, remember
the whole IRA or 401k has to come out by the end of 10 years after death.
Jeffrey Levine: You are totally right and and in fact, you know, it's, I'm glad you
brought that up because I think that's another reason why this is a big deal.
It increases the likelihood that people will experience what I've started to
call the big tax crunch, which is fewer years of forced distributions, plus
fewer years of possible distributions means a lot more income may be
compressed into a shorter amount of time.
Ed Slott: Right.
That's what I'm talking about!
Jeffrey Levine: You know, listeners to this program who are
probably more proactive than most.
Hopefully they'll, they'll get the idea that we've gotta look
proactively, maybe look at Roth conversions or things like that.
But a lot of people who just kind of look at the default and
say I don't have to take this.
This is now further back that they're pushing those RMDs.
They're gonna have more tax in their lifetime, and as you talked about,
Ed, they're gonna have a lot more tax potentially for their heirs because
we're taking what used to be starting at 70 a half, we're making that
somewhere between 3, 4, 5 years for some shorter of, of forced distributions
during life, and we're taking what was decades and we're shortening it down
to 10 years from most after death.
That's a big deal.
Ed Slott: And wouldn't you agree that most people, if they hear
the word minimum, everybody likes I, it's such a popular provision.
Congress loves it.
People, they say, oh good, I don't have to do it.
But you are just creating a huge tax bill at some point during your
lifetime and the beneficiaries.
So I, I think it encourages people to delay distributions when maybe they
should take more out while rates are low now in 23, 24, 25, and get that out.
But another,
Jeffrey Levine: So you agree, it's a big deal then.
Ed Slott: No, it's not a big deal.
Uh, the reason it's not a big deal, another big reason I'll give you cause
it only affects maybe 20% of the people.
Uh, under the treasury's own statistics, 80% of the people take more that are
subject to RMDs take more than the amount because they need the money.
So telling them, well, if you need the money, you don't have to take it.
Well, I need the money!
Jeffrey Levine: That's true, and that, and that was before when it was 70 and a half.
Ed Slott: Yeah, that was true.
Jeffrey Levine: And certainly more people take it now voluntarily and before a bear
market in 2022 that uh, you know, probably hurt some people's finances as well.
Yeah.
Ed Slott: So it only helps the people that don't need the money, they can delay.
But like I just said, if they delay, they're probably the ones gonna get
hit with a, uh, bigger tax bill.
Them and their beneficiaries.
We have other provisions.
Anyway, that's our deal or no deal on RMDs.
What about deal or, uh, no deal.
Uh, on the 50, former 50%, one of the biggest penalties
in the tax code, the 50%...
I said former, the 50% penalty for not taking an RMD, one of the harshest
provisions in, in the whole tax code.
And now it's gone.
It's gone and replaced with a 25% penalty.
Oh, what a deal.
Uh, and even 10% if you make up the missed distribution.
I call no deal on that.
Uh, but, uh, do you want me to tell you why first, or you
wanna say why it's a big deal?
Jeffrey Levine: I'll say why it's a big deal.
I mean, you just said it's one of the biggest, uh, biggest penalties in the tax
code if it's going from 50 down to 10.
I mean, that's a reduction of 80%.
I mean that quantitatively, that has to be a big deal, right?
Ed Slott: All right, I'll cut you down on that.
I'd rather pay 50% of nothing than 10% of something.
I may be a little cynical here, but as you would agree, I know you would agree.
Almost nobody ever paid the 50% penalty.
If you had the dog ate my homework, whatever you said, that
penalty IRS was very generous and liberal waiving the penalty.
I worry at 10% now, will they be as generous?
Will more people end up paying 10% now?
Uh, so it behooves every advisor and everybody watching this to
make sure you take your RMD.
So I say it's no deal.
Only because you could end up with a higher penalty than you
would've had under the 50% regime.
Jeffrey Levine: Well, I think that's a good point, Ed.
But one of the other provisions of the SECURE Act that we can talk about,
uh, related to RMDs is the fact that they're looking to shift how they provide
relief about this penalty in general.
So I don't know if they were going to be shifting the way they give relief to
something called EPCRS, which is just a, a obnoxious acronym for employee
plans compliance Resolution system.
Uh, traditionally this was reserved for if a 401k or a 403b or similar
type of plan made a boo boo, right?
And it was about to, to lose its qualified tax preference status.
You could go to the IRS, do a mea culpa, ask how how you should
fix, you know what, what step you should take to rectify your plan.
And the IRS would tell you, and you did it, and they blessed it,
and they said, okay, you're good.
You're back in our good graces.
Well, they're now gonna apply the same group to RMD forgiveness, and I wonder
if that group will be as beneficial.
So without a change from the 50% to the 10%, maybe that group
would just say, you know what?
You're paying 50%.
And not only that Ed.
I believe very recently, you know, the IRS got a big infusion of cash,
something like 80 billion above and beyond what was their, uh, their
normal funding and part of that...
Ed Slott: Yeah, lemme stop you there.
Uh, I doubt any of that was directed to RMD relief.
Jeffrey Levine: Well, I think a little bit of it is gonna go to modernize..
Ed Slott: Maybe like 5 or 10 dollars.
Jeffrey Levine: Well, you know what?
They're gonna modernize their systems and modernizing their systems might make it,
you know, the IRS knows how old you are.
They have your social security number.
Ed Slott: I always said that, they're one keystroke away from knowing everything.
Jeffrey Levine: That's right.
And so if they were on keystroke, if they actually modernize their
system, you know, right now I think my, uh, my, uh, my pocket calculator
that I used in sixth grade has more power than the IRS computers.
If they actually go ahead and use some of that money to modernize
their systems, maybe they're actually able to pull that and match
1099Rs and start asking questions.
You know, I think it's something like 80% of the audits today are
done as correspondence audits.
Where they basically send you a, a question in the mail and say, prove it.
Uh, and you know, maybe we see more of those correspondence audits popping
up soon where they say, hey, you're 74, we see that you have a 5498,
which the IRS already has saying what your fair market value is.
You know, your RMD age.
Why didn't you take enough?
It doesn't like, it wouldn't take a particularly powerful computer
system to be able to identify that.
Ed Slott: Not only that, there's a checkbox on the form.
It's subject to RMDs.
Jeffrey Levine: It's almost like they have all the information there.
So I think this could be a big deal if we do see those systems modernized
and we do see more people having the otherwise, even though it's a big deal,
Ed, it's just the numbers game, right?
Like we talk about 10,000 baby boomers turning.
Were retiring every year.
But the reality is, it it, that's kind of an average over
the baby boomer demographic.
It started with five and 6,000, but now we're, we're kind of
seeing the crest of that wave.
So more people are going to be getting coming into RMD age than we have ever
had in the history of the country.
And so just.
If we just extrapolate out the amount of people who make mistakes today based on
how many people there are today versus the amount of like, even if it's on a
relatively constant basis, that's a heck of a lot more people having a heck of a
lot more mistakes that now at worst, they will see 25 or 10% if they timely fix it.
So big deal.
Ed Slott: Including beneficiaries and their RMDs are very
complicated with the 10 year rules.
So we'll have to see that EPCRS, uh, that correction system, we won't know.
Uh, IRS according to this law, has two years to write the
rules on that and the guidance.
But let's move on while we're talking to about RMDs.
Deal or no deal, the QCD, qualified charitable distributions,
uh, the change there is the a hundred thousand is the limit.
Uh, what you can do per person, not per IRA, per person, per year.
For IRA owners who are 70 and a half years older or older, or IRA
beneficiaries have to be 70 and a half.
Even though the age, the RMD age, is now 73 and maybe one day 75, it's still
a 70 and a half age and it's uh, only for IRAs, just to make that clear.
So the hundred thousand, I always thought that was enough for most people.
How many people give that much?
But apparently it wasn't.
So that's going to be index for inflation.
So that's one thing.
I don't think it's a big deal cause I don't think unless you have the, the big,
the heavy hitters, I don't think that's gonna make that much of a difference.
And then the other provision, a, a one time $50,000 QCD.
To split interest in entities like, uh, charitable gift annuities
or charitable remainder trust.
I don't think that's a big deal because it's only 50,000.
You're gonna set up a whole trust and the, the whole, uh,
infrastructure on that for one item.
So I, I, that's my no big deal on that.
Why do you say it's a big deal?
Jeffrey Levine: No, this one's tough, Ed.
Ed Slott: I know!
Jeffrey Levine: I almost wanna concede, but I can't do that.
My pride won't let me do it.
I have to argue that it's a big deal.
I guess I'm gonna go with a big deal because people have
been asking for a long time.
Can we allow our QCDs to be made to other types of charitable organizations?
And the big one that people have asked for is, can I put
this into my donor advised fund?
And now the law, just to be clear, SECURE Act 2.0 does not do that.
Ed Slott: Right.
Jeffrey Levine: Donor advised funds are still not allowed, but maybe
this cracks the door a little bit.
So I'm gonna say big deal, because maybe this is the first crack in
Congress's position that this money has to go right to charity directly,
immediately, and exclusively the split interest you're talking about.
You know, these things are, this allows you to still benefit a
portion of those dollars, but also still have charity benefit.
And I think the biggest deal there is gonna be on the charitable gift annuities,
the charitable remainder trust, and the charitable, uh, remainder and the,
the unit trust and the annuity trust.
I think...
Ed Slott: You have to concede on that.
Jeffrey Levine: I, I, I just, I got nothing.
I mean, I, I can't, it's hard to imagine a scenario where I could
do that, but the charitable gift annuity, you know, the big difference
is no setup cost in general, right?
Because the charity is typically operating that, and you have no ongoing cost
like you would have with a, an ongoing trust, with a trust tax return, etc.
So the charitable gift annuity is a great way for someone to still
benefit in part from the dollars that they had in their IRA, but
support their charitable endeavor.
So I think that could be a big deal.
If I have to go with one, I'm gonna go with that.
And again, I think the biggest thing is this is the first crack in that kind of...
Ed Slott: That's true.
One more item.
Jeffrey Levine: All right, one more.
Ed Slott: QLACs, Qualified Longevity Annuity Contract.
Jeffrey Levine: Oh, big deal, Ed.
Big, big deal.
Ed Slott: I would agree.
It's a big deal.
Uh, let me, these are these, uh, longevity annuities where they kick in generally
at 85, and the idea of them is great.
Uh, that, you know, you hit 85, you're not outta money, and whatever amount
you apportion to that within your IRA, comes off the calculate - the
amount that's used to calculate the RMD so it can lower your RMD.
Here's why I say no big deal.
I mean, it is a big deal.
They just raised it.
They got rid of the 25% limitation, great, and they raise it to 200,000.
That's a big deal.
Here's why I say no big deal.
Nobody uses it.
I don't see anybody who uses it.
We were at, uh, one of our training programs and we have hundreds of
advisors that are really into this stuff.
I said, how many of you are using the QLACs?
And not even one hand.
I don't know why.
I think the idea is good.
So that's why I say no big deal on this.
Jeffrey Levine: Yeah.
You know, it is one of those, uh, things where it even has a
name, the annuity paradox where academically, these types of annuities.
And Ed, we should just make clear, you and I are CPAs.
Uh, you, neither one of us has an insurance license.
Ed Slott: Oh, right, right.
Jeffrey Levine: Uh, and you know, I I, you don't, you don't do anything in terms of
advising and I work for a fee only RIA.
We don't, you know, we don't take commission.
So we are like your poster childs for, or poster children, I should
say, for the people who are supposed to hate anything called annuities.
But the reality is, were, we are fact-based, right?
We're evidence-driven human beings, first and foremost.
And the evidence supports income style annuities.
Longevity annuities.
Now there's, I, I don't, you know, there's a, a famous ad out there, Ed, I, you
know, I hate annuities and you should too.
And I don't, I don't hate, I have them.
I know.
I know, but you know what?
I hate the word annuity, and I think you should too because the word
annuity means so many different things.
In some cases it's very high fee, uh, products that allow you to invest,
but take your money back over times.
In some cases, it's a, almost like a CD offered by an insurance company,
so-called Migas multi-year annuities.
Ed Slott: I have those!
Jeffrey Levine: Right, right.
And then in other cases, we're talking about these income style annuities.
And so I think the problem is when people hear annuity, they just shut
down cause they've heard all these quote unquote bad things or terrible things.
And the reality is like most things, there are good products and bad
products, and more importantly, good things for you and bad things for you.
And from an academic perspective, these so-called income and
particularly longevity annuities.
Annuities that don't start income until much later in life.
But because they're not starting until much later in life, tend to provide
much higher levels of guaranteed income for that remainder period are
shown as one of the best, if not the best way to mitigate longevity risk.
And Ed, you as I, uh, you, as know, as well as I do, most people when
they walk into an office of an advisor or a tax professional, like their
biggest risk is, I don't wanna, or biggest concern is I don't wanna run
out of money before I run out of life.
And so if that's your biggest concern, you should start, not to say that you
should run out and buy these things right away, but you should at least
explore the things that are most likely to help you manage your biggest risk.
Ed Slott: And that would include QLACs.
I'm trying to get you back from this negative thing you just did too.
This is a big deal.
You're supposed to be on the big deal side.
It didn't..
Jeffrey Levine: Well, it's a big deal because they're, they're,
they're helpful in this regard.
Ed Slott: They're great products, I'm saying no big deal cause nobody uses it.
Even though we, I think we agree they should.
Jeffrey Levine: Well, after listening to this Ed, everybody's gonna be
out there thinking about them, so.
Ed Slott: Well, 200,000 now.
Jeffrey Levine: Big deal.
Ed Slott: Alright, that's it for our RMD, uh, deal, or no deal, uh,
section of secure 2.0, but there's lots of other provisions we'll
cover in, uh, future episodes.
Jeffrey Levine: Yeah, certainly we've got Roth related provisions and a ton more.
Remember, there are almost a hundred provisions in this.
So Ed, you know, like we always say, you know, there are two sides to every coin,
today our two sides were deal or no deal, but you know, your retirement and your
decisions are too important to leave up to a coin flip, and that's why the one
thing Ed and I always agree on is making sure that you run by any big decision with
a knowledgeable financial advisor or tax professional so that you can weigh the
pros and the cons or whether something for you is a deal or no deal against your
specific set of goals and objectives.
If you'd like to continue the discussion with Ed and I, we'd love to hear from you.
You can reach out to Ed using the handle @TheSlottReport on Twitter
that's @TheSlottReport on Twitter or myself on Twitter @CPAPlanner.
Again, that's @CPAPlanner.
Ed, this was fun, but I know we've got a lot left, right?
Ed Slott: Yeah, we still have more provisions on 2.0 coming up in
our deal or no deal on Secure 2.0.
Jeffrey Levine: All right, so we'll see you next time on
the Great Retirement Debate.
Outro: Jeffrey Levine is Chief Planning Officer for Buckingham Wealth Partners.
This podcast is for informational and educational purposes only, and should
not be construed as specific investment accounting, legal or tax advice.
Certain information mentioned may be based on third party information,
which may become outdated or otherwise superseded without notice.
Third party information is deemed to be reliable, but it's.
And completeness cannot be guaranteed.
The topic discussed in corresponding arguments are those of the speakers
and may not accurately reflect those of Buckingham Wealth Partners