This proposed change to the tax code is a simplification, but at what cost? One bit of the proposal offers to eliminate RMDs on retirement account that are worth less than $100K. A good thing, I suppose, although those with a low IRA balance are also likely to be in such a low tax bracket that the withdrawal wont be a burden. The next part of this change is add RMD requirements to the Roth IRA. I have mixed feelings about this. One view is that retirement accounts are meant for just that, retirement. These accounts have morphed into estate planning tools, especially for those of modest means. The IRA offers a great way to pass your assets on to a loved one, bypassing probate, and in the case of the Roth IRA, doing so with no tax bill on withdrawal.
I’m neutral on this proposal. Of course the government sees it as way to raise money.
Bear in mind that you don’t need an IRA account to bypass probate. Most custodians will let you set up “TOD” – “Transfer on Death” settings for any account, which bypasses probate, too. And, of course, there’s the traditional “living trust” which also bypasses probate, though trusts cost money to draft, while TODs generally cost nothing at all. You can set “TOD” (or “POD” or equivalent) on a variety of types of accounts and even on property, depending on the state, potentially including real estate, automobiles, etc.
And bypassing probate is *not* the same thing as avoiding estate taxes.
The big estate tax advantage is from doing Roth *conversions* of existing IRA assets, since the tax on the conversion is paid while alive, thus reducing the estate – this can make Roth conversions a big win even for folks in high tax brackets, and even if the future beneficiary is likely to be in a lower tax bracket (where the normal logic is “do the Roth conversion if the future tax bracket/rate may be lower).
I guess, though, that I take less issue with RMDs (as you said, these accounts are, in fact, intended for retirement, not legacies) than I have with the penalties attached to them. Missed RMDs have a 50% penalty, one of the highest in the tax code.
That said, the government has less incentive to push RMDs in Roths since part of the motivation for RMDs is for the government to actually get to collect the taxes – and in a Roth, taxes have *already* been collected.