If passed into law in its current form, the SECURE Act could eliminate the Stretch IRA.
Kent, WA -- (ReleaseWire) -- 08/08/2019 --In May of 2019, the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act or SECURE Act by a vote of 417 to 3 — an overwhelming bipartisan majority in an era where that is increasingly uncommon. As of August of 2019, the bill is still making its way through the Senate. Though, most congressional observers expect that it will eventually pass, at least in some form.
The SECURE Act Reforms Retirement Savings Plans
The SECURE Act proposes a number of different changes to retirement savings accounts. Many of these changes are relatively minor and highly technical. Beyond that, the reforms mostly create additional opportunities for people who are saving for retirement. That being said, there is an important provision within the SECURE Act that could have significant ramifications for some people who are creating their estate plan.
Strict New Limitations May Be Put on Stretch IRAs
Notably, the SECURE Act proposes strict new limitations on an estate planning strategy referred to as the Stretch IRA. Essentially, a Stretch IRA allows a person to pass on their Individual Retirement Account to a non-spouse beneficiary, without it immediately losing its tax-deferred status. Beneficiaries can withdraw assets from a Stretch IRA very slowly, thereby maintaining protection for decades.
In other words, the IRA can be passed from generation to generation, all the while retaining its tax protection. This is valuable. As Renton, WA estate planning attorney Dan Kellogg notes "Tax considerations are a key part of effective estate planning." However, this estate planning strategy may not survive the Secure Act — at least in the bill's current form. Under the Secure Act, beneficiaries would be required to withdraw all assets in a Stretch IRA within ten years of the death of the benefactor.
The Senate Still Needs to Pass the Bill
Of course, the nuts and bolts of the SECURE Act will only be relevant if the Senate actually passed the bill and it is signed into law by the President. While the Senate is expected to take action on the legislation after the August recess, there are some senators who prefer an alternative bill called the Retirement Enhancement and Savings Act (RESA). Interested parties should keep their eye on what happens to Stretch IRAs.