Non Spousal Inherited IRAs Targeted

[Lee B]

The Senate Committee on Finance voted 26-0 in September to kill the "Stretch IRA" for non-spousal beneficiaries -- putting trillions of dollars of legacy wealth in danger of being collected by the tax man.

"This is going to be big," said James Lange, a Pittsburgh-based tax accountant, attorney and author. "It's not a done deal. It's not immediately effective. But in the past when you had a 26-0 Senate vote, the legislation always became law the next year."

The Senate proposal will be included in a bill called the Retirement Enhancement and Savings Act, and would require beneficiaries of an inherited IRA or other qualified retirement account to pay all taxes due on the account within five years of the owner's death.

The proposed law does not apply to surviving spouses. Surviving spouses may still spread the taxes due on the account across their life span or roll the money into another retirement account.

[Abby Normal]

There's a lot more in the law, including eliminating Roth conversions.

http://www.finance.senate.gov/ranking-members-news/wyden-proposal-would-crack-down-on-tax-avoidance-in-retirement-plans-create-new-opportunities-for-working-americans-to-save

[Richcpaman]

Looks like that is the "Hit Mitt Romney Hard" Bill.

If it passed the Senate, what happened in the house?  We have a new Senate and House being sworn in, so doesn't all legislation die?

Rich

 

[Lee B]

3 hours ago, Richcpaman said:

Looks like that is the "Hit Mitt Romney Hard" Bill.

If it passed the Senate, what happened in the house?  We have a new Senate and House being sworn in, so doesn't all legislation die?

Rich   

 

This bill was approved by the Senate Finance Committee. Apparently, has not been brought up for a vote by the full Senate, yet.

Edited December 29, 2016 by jklcpa
moved reply out of the quote box

[joanmcq]

I wonder what happens if you are already in a stretch IRA? Grandfathered or forced to withdraw?  Mine is a good chunk of my retirement savings. 

[JohnH]

I saw an article about this a few days back. It was written by a financial advisor, but he's one of those rare exceptions - a F/A I actually respect.  I'm pretty sure he said the effective date is expected to be when the legislation passes, thus effectively grandfathering existing stretch IRA's.  

[Christian]

Good grief. What else are they going to change?  If they can.

[JohnH]

I've always thought the stretch IRA fell outside the original intent of IRA plans.  I don't fault anyone for availing themselves of whatever the laws permit (full disclosure - I inherited a relatively small one that I am stretching out as long as possible).  But there really isn't a good argument for allowing the stretch IRA to exist.  I have the same view of the backdoor Roth, but that's another issue altogether. 

[Richcpaman]

Actually:

The intent is to eventually tax the amounts in the IRA's at some point,  From the IRS's POV, the sooner the better.  Therefore, you have the RMD Rules.

I like the stretch IRA rules.  I think they are a good rule.  The Money stays invested, but the feds start to get some money from the funds.  Abolishing the stretch rules, which have only existed for 15-18 years, would be a real bad idea.

If you get $500k from a parent who dies, your effective tax rate on that, right now, excluding state tax, could be 44%.  That is HUGE money grab by the government.

The whole ROTH Rules are being driven by investment lobby.  The money is invested, but it is taxed up front,  The government likes that.  IF they restrict ROTH, which I expect them to do anyway, and they also blow up the "stretch" rule's, the government is in for a bonanza.  There is supposed to be 10 trillion or so in assets moving from the baby-boomers to the next generation.  A big chunk is in pension funds, IRA's and 401(k)'s

Rich

 

[Catherine]

1 hour ago, Richcpaman said:

The intent is to eventually tax the amounts in the IRA's at some point,

Exactly.  On the one hand they claim they want us to save for our own retirement.  On the other, they make the rules ever-changing and harder to follow.  This would be a case of "poop or get off the pot" except they cannot decide which social end they really want to achieve - more taxation NOW or more taxation later; more retirement savings to lighten the socsec burden or less retirement savings that push more government control.  And I will stop right there, lest I cross the line into "political" posting.  No, I will say one more thing:  all the legis-vermin in DC (and most of those in the state houses, as well) need a good spanking (except for those who would like it; they don't get spanked) and some hard lessons in economics.   *And* get locked into a room with no calculator, lots of dull pencils, insufficient erasers, and NOT let out until they do their own taxes correctly.  Mwa-hah-hah!