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Stretch IRA Options May Change Under Proposed Federal Legislation

5-25-2019 - The House of Representatives has passed the SECURE Act (“Setting Up Every Community Up for Retirement Enhancement”) by a vote of 417 - 3. The legislation is designed to make it easier for Americans to save for retirement. One part of the legislation may, however, make the Stretchout IRA Trust a less attractive option for clients who wish to leave their IRAs to their children.  

A stretchout IRA allows a non-spouse beneficiary of your IRA to take required minimum distributions based on his/her own life expectancy. This can provide a lifetime income stream for the beneficiary. Under the SECURE Act, a non-spouse beneficiary would have to exhaust his/her inherited IRA within 10 years, creating significant income tax liability. (There would be some exceptions to the 10-year rule, for disabled beneficiaries, beneficiaries less than 10 years younger than the decedent, and minor children.)

Our lawyers are closely monitoring the progress of the proposed legislation. Despite the rare bipartisan support, nothing is yet set in stone. Continue to check this website for news and do NOT attempt to change your documents or your plans without our recommendations and guidance.

The SECURE Act also would raise the age at which required minimum distributions must commence, from age 70 1/2  to 72.

The Senate has passed its own bill, similar to the SECURE Act. The Senate's RESA Act ("Retirement Security and Savings Act") would require a non-spouse beneficiary to withdraw the full amount of an IRA within five years if the IRA is over $400,000. It too would increase the age one must take RMDs, from 70 1/2 to 75. The age increase would occur in several phases. Other provisions would enable the greater use of annuities in IRA accounts, and allow employers to match contributions to an employee’s retirement account equal to the employees’ student loan payment.

The Secure Act now heads to the Senate for discussion and reconciliation.


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