RESA 2018 filed – Kills Stretch IRA for non-spousal benes

Submitted by Chuck 2009x on Sat, 2018-03-10 13:42

The Retirement Enhancement and Savings Act of 2016 was refiled on March 9 as the Retirement Enhancement and Savings Act of 2018. The text is not on Congress.gov as of this morning, but the text has been posted on the Senate Finance Committee website. https://www.finance.senate.gov/imo/media/doc/3.8.18%20RESA%20bill%20text%20FINAL.pdf
The bill includes the provision that requires accelerated distributions (within 5 years) of amounts over $450,000 to non-spousal beneficiaries. The bill has to pass both houses and be signed by the end of the current Congress in early January 2019. If passed, it would be in effect for deaths after December 31, 2018. If it’s not enacted, they’ll have to file it again in 2019 or 2020.



Submitted by Alan - IRA critic on Sat, 2018-03-10 18:50

Thanks for posting. Due to the level of complexity embedded in Sec 501, I can’t see this ever becoming law. The entire financial industry will come unglued over this level of complexity. Qualified plans having to pro rate with IRA accounts and pro rate again per beneficiary?  I don’t view all this as being even close to practical or workable. Would be far more practical to just have a basic 5 year rule without dollar exemptions.

Submitted by Ben Meyer on Sat, 2018-03-10 19:17

  • As with the earlier RESA bill, this proposal seems to be a good recipe for chaos.  Section 501 generally limits the stretch to 5 years for non-spouse beneficiaries when the total of all defined contribution plans of a decedent exceeds $450,000.  But this requires coordination berween all non-spouse beneficiaries that does not exist.  
  • Each plan custodian or administrator can’t know the total value of all plans, since each plan cannot even be aware of the existence of all other plans of a decedent. Frequently, the beneficiaries of an individual likewise have no knowledge of any other beneficiaries or plans, and they certainly wouldn’t know their value.  If there is an executor, this person can’t know with accuracy about the accounts that pass outside of the estate, such as IRA, 401(k), or 403(b) accounts.  In most cases the plan administrator or custodian won’t disclose any information except to a beneficiary, and not to the executor.  And in many cases there isn’t any executor or personal representative, since avoidance of probate is a frequent goal of estate planning.
  • The scope of regulations to address this issue would need to be extensive and would need to extend to matters never before addressed. 
  • Much confusion and complexity would be the expected result if this bill passes in its current form.  But the proposed bill should be taken seriously, since it also contains several provisions that would be widely welcomed, such as extending the age for traditional IRA contributions beyond 70.5, and reinstating the deductions for volunteer fireman and first responders.  Also remember that the earlier RESA bill was passed unanimously by the Senate Finance Committee.

Submitted by Chuck 2009x on Sun, 2018-03-11 16:56

I agree it’s an administrative nightmare.  Of course, the easy way to solve that is to get rid of the exemption.  I don’t have a feel for what it’s chances of passage this year are.  It got filed really late in 2016, way too late to really have a chance.  This year, it’s a little earlier.  The concept of killing the stretch in order to pay for expanded/changed MEPs has been around in various bills for several years now, it’s just never a high enough priority.  In reading extensively about the 2016 bill, it seemed wedded in some weird way to a couple of bills that were essentially bailouts of miners unions pension funds.  McConnell didn’t want the bailouts to happen, so RESA 2016 was never going anywhere.  From reading around the last couple of days, it seems like a big omnibus spending bill that’ll be labeled an infrastructure bill is going to be the only big piece of legislation that will get taken up this year.  But people will try to attach all kinds of stuff to it, so we’ll have to see.  BTW, last February (2017), I wrote (snail mail) all members of the Senate Finance Committee, my own two Senators, and my House Rep with a hard breakdown of the loss of future income and taxes in my own case if it was enacted.  I got no reply from any Senator, not even a boilerplate courtesy reply like I did from my Rep.

Submitted by Alan - IRA critic on Thu, 2018-03-15 16:45

Apparently, the complexity of Sec 501 has escaped the attention of ERIC so far.  

Submitted by Chuck 2009x on Tue, 2018-03-20 18:45

From reading about this since it was re-filed, it became apparent that the best chance of getting it passed was if it was attached to the omnibus spending bill that Congress needs to pass by the end of this week to fund things through October.  According to an article at Politico yesterday, that’s not likely to happen.  And it’s presumed that not much will happen legislatively the rest of this year because of the election and then lame duck sessions between November and January.  However, identical bills were filed in both houses –  S. 2526 and H.R. 5282 so anything can happen.  But, it looks like the bullet may have been dodged for another year.  A separate Joint Select Committee was formed in the Senate to take up MEPs and that committee is supposed to report out a bill by November.  Not sure how that affects RESA.

Submitted by Alan - IRA critic on Tue, 2018-03-20 19:58

Looks like this will pass at some point in the next few years since it provides low hanging fruit to fund other tax provisions. However, Sec 501 is a technical nightmare particularly in view of the fact that there is very limited oversight of the current much simpler IRS beneficiary Regs.

Submitted by Chuck 2009x on Tue, 2018-03-27 19:08

Picked this up regarding Section 501 via Google alert today.  SBCA is the Small Business Council of America.   “The SBCA highlighted that, if the proposal becomes law, accountants and other advisors will tell their clients to not save any more in a retirement plan than what they are sure to use during their lifetimes.  Most small business owners regard the contributions they make for their staff as the price of being able to have a qualified plan to save in for their own retirement. Thus, once they reach the advised amount of savings, small business owners will close or freeze their plans. For the employees, this will mean that they will not receive the retirement plan contributions (or the option to save in a plan) nor will they get the foregone contributions as additional salary. The SBCA noted there are also principles of fairness in play, particularly for older Americans who have saved in retirement plans for years and will be informed that the tax treatment available to their children has suddenly been drastically changed for the worse. To lessen this unfairness, the SBCA urged Congress to, at a minimum, provide children with at least 20 years to remove funds from an inherited plan in order to be able to spread out the income taxation.”

Submitted by Alan - IRA critic on Tue, 2018-03-27 19:38

Submitted by William Tuttle on Wed, 2018-03-28 01:31

Submitted by Chuck 2009x on Fri, 2018-03-30 07:19

It was nice to see at least one other angle of advocacy against accelerated distributions.  The problem as I see it is that in the case of RESA, the acceleration was very clearly and specifically calculated as a “payfor” to offset lost revenue as a result of giving more people access to plans.  So changing any part of the formula kind of blows up the payfor math.  However, I’d also note than in earlier versions of RESA there was no amount exempted from the acceleration.  I’d guess they found a few bucks somewhere else in order to make the exemption amount work.  The exemption is also a slight indication that at least someone raised a fairness issue somewhere along the way.

Submitted by Bruce Steiner on Fri, 2018-03-30 14:12

Submitted by Chuck 2009x on Sun, 2018-04-01 11:07

Yes, when I wrote to the members of the Senate Finance Committee, one of the alternatives I suggested was not counting the accelerated distributions as tax-year income but fixing the tax rate at either their current marginal rate not including the distribution, or at some other fixed rate that’s more favorable than what happens when the distribution pushes you into a higher bracket.  I ran the numbers on a CRUT, the math just doesn’t work for people like me at a certain income level and age who are already on a glide path to retirement and not in 100% perfect health.  But I agree it’s a viable option for a beneficiary younger than me.

Submitted by Alan - IRA critic on Sun, 2018-04-01 17:33

Raising revenue, equitable and fair provisions, and simplicity. When the first two get priority simplicity is always sacrificed. Sec 501 would trash some of the RMD simplification measures included in the 2002 RMD Regs. Considering the long standing RMD tax leakage identified in several IRS studies, there isn’t much sense adding a high degree of complexity to beneficiary RMD calcs. 

Submitted by Chuck 2009x on Wed, 2018-06-20 18:50

I figured I should keep updating this same thread until the 2018 version either passes or expires.  Identical bills still exist in both House and Senate.  The House version has been signing on a lot of cosponsors, which I hadn’t seen with the 2016 version, but I’m not really sure what significance that has.  Each bill has been referred to committee but no actions taken by the committees.From oblique references, I take it that there is a some opposition to Sec 501 among House leadership.  A lot of the Google alerts I get are from retirement trade groups projecting optimism and commonly saying that maybe it’ll pass this year out of some sort of tribute to Hatch.  Other than that, they’re mostly boilerplate. However I did get this alert today regarding a lobbying visit by ASPPA College of Pension Actuaries (APCOA), which is a subgroup of ASPPA, which I’m too lazy to spell out the name of.”On the 22nd, we met with staffers from the Senate Finance, Senate HELP, House Ways & Means and House Education and Workforce Committees. The focus of the meetings was a discussion of the following issues. 

So I guess we’ll see.  Supposedly repubs are going to try for Tax Reform II this year, and any of the RESA provisions can get bolted onto an legislation at any time. 

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