Question: I understand Congress is changing the rules and may take away the ability to utilize the so-called “stretch IRA”?
Answer: 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 provisions, but there is still a ways to go before the SECURE Act becomes law.
The SECURE Act includes some good things for people who have traditional IRAs, including the following:
- It would remove the prohibition on traditional IRA contributions for those age 70½ and over.
- The SECURE Act would increase early access to IRA funds by creating a new exception to the 10% early distribution penalty. The bill would allow penalty-free distributions for any “qualified birth or adoption distributions.”
- The current proposal would increase the age when required minimum distributions (RMDs) must begin from age 70½ to age 72.
But there are also some provisions which could be bad news for IRA account owners. In order to create a new revenue source, the SECURE Act would essentially do away with the stretch IRA. Under the proposed legislation, distributions to beneficiaries other than the surviving spouse, disabled or chronically ill people, individuals who are not more than 10 years younger than the account owner, or a child of the account owner who has not reached the age of majority would generally be required to be paid out by the end of the tenth (10th) calendar year following the year of the IRA owner’s death.
Comment: While the act has bipartisan support, the Senate also has its own version of a retirement savings act which I have not seen but understand is very different from the SECURE Act.
As always, if you have any questions or would like to learn more, please contact Steve Shane at firstname.lastname@example.org or .
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