Does the Proposed SECURE Act Mean the Death of the Stretch IRA? | Ed Slott and Company, LLC

Does the Proposed SECURE Act Mean the Death of the Stretch IRA?

By Sarah Brenner, JD
IRA Analyst
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The House Ways and Means Committee recently passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act).

This bill includes a number of measures designed to strengthen retirement savings. With regard to IRAs, the bill would treat certain taxable non-tuition fellowship and stipend payments as compensation for purposes of making a contribution and would remove the prohibition on traditional IRA contributions for those age 70 ½ and over. It would also allow penalty-free distributions for any “qualified birth or adoption distributions” and would increase the age when required minimum distributions must begin from age 70 ½ to age 72.

Buried in the SECURE Act is some bad news for many retirement account owners. As a revenue raiser, the SECURE Act would essentially do away with the stretch IRA as we now know it. The proposed legislation would change the rules for defined contribution plans and IRAs upon the death of the account owner. Under the prosed legislation, distributions to beneficiaries other than the surviving spouse, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the account owner, or child of the account owner who has not reached the age of majority would generally be required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death. In other words, most beneficiaries would end up with a “10-year rule”.

We will be following this proposed legislation carefully. While it is only a first step and the road to passage of any law in this time of divided government is a long one, the SECURE Act does have bipartisan support and many powerful lawmakers behind it. The future of the stretch IRA is once again in question as our government looks under the sofa cushions for spare change or any possible revenue source they can find. The stretch IRA, unfortunately, is not supported by a powerful lobbying group, which increases its peril. Stay tuned!

 


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