SECURE Act and Death of the Stretch IRA

Submitted by Brent Washam on Wed, 2019-08-07 16:03

Curious if there is an alternative, perhaps using a Trust, to stretch a Roth IRA inherited by non-spouse family members. I plan to write my senators since legislation is held up but the overwhelming congressional support of SECURE makes me think there’s not much chance of preserving the stretch IRA as it exists. Would like to read more detail about the final house provisions, and current objections expressed by Ted Cruz and perhaps other senators. Particularly wondering if there is any grandfathering and what stretch exceptions ($450K total or per heir?) survived. Can somebody point me to a good source for information?



Submitted by Alan - IRA critic on Wed, 2019-08-07 18:31

  • Following is an article regarding estate planning changes that might be viable, including use of trusts. However, note that the inherited Roth IRA must still be distributed at the same speed and tax free Roth earnings will cease. The trust only provides options for donations and other purposes that could result in lower taxation of the trust’s earnings after the IRA is liquidated to the trust. As for the current bills in Congress, they are currently in limbo and the Cruz objection is unrelated to reduction of the stretch period. It is related instead to the use of 529 distributions for home schooling. Taxpayers should wait until the bill is actually passed and signed into law before determining a course of action, since changes are likely in Conference committee or otherwise. The main problem is that there is no organized lobby objecting to the stretch limitations, and there is general consensus that the bill overall is beneficial to retirement savings. The courts have ruled that a non spouse inherited IRA is not a retirement account of the beneficiary, as it was for the IRA owner. It is simply an inheritance, and does not have creditor protection at the federal level, although a few states have passed legislation to protect these inherited IRAs.
  • https://www.forbes.com/sites/leonlabrecque/2019/08/06/have-an-ira-or-401k-the-new-secure-act-will-change-your-estate-planning/#54fd526356a3

Submitted by Chuck 2009x on Sun, 2019-08-11 18:54

  • At least the Stretch provisions in the bills have been been getting some bad press in the last month or so.  Sen. Toomey of PA has said it’s one of his reasons for placing a hold on unanimous consent of SECURE in the Senate.
  • Next milestones or things to watch are having one bill or the other attached to a must-pass spending bill in September.  If that doesn’t happen, then they will have to get unstuck on their own – either if the holds come off for unanimous consent, or two separate bills go to committtee.  Or nothing.
  • As for grandfathering, both bills currently provide that the new distribution methods would go into effect with deaths occurring after Dec 31, 2019.
  • If you want to follow, I’d suggest setting up the following alerts:
  • On Google News:
  • “Stretch IRA”
  • “SECURE Act”
  • “Retirement Enhancement and Savings Act”
  • On Congress.gov:
    • HR1994 (SECURE Act in the House)
    • S972 (RESA in the Senate)
    • HR1077 (RESA in the House)

     

    Submitted by Alan - IRA critic on Sun, 2019-08-11 22:45

    Do you know what % of the total bill is expected to be “paid for” by curtailing the stretch?  

    Submitted by Chuck 2009x on Tue, 2019-08-13 14:52

    • I don’t have (and haven’t seen available) numbers for the SECURE Act.  I do have numbers for RESA 2016.  When they calculate the revenue implications, they project things on an annual basis for 10 years.
    • For RESA 2016, revenue from the modification to distributions was $3,182 of the $5,662 total payfors (I’m assuming those represent millions) over the 10 years, or 56%. 
    • There was a line item for “Accelerate Payment of Variable Rate Premiums” which I think applied to PBGC premiums due after 2027 – I think they were going to pull them forward into 2027.  That line accounted for 1,007.
    • Penalty for Failure to File: 235
    • Modification of Hardship Withdrawal Rules: 706
    • Increased Penalties for Failure to File Retirement Plan Retuns: 113
    • Modification of User Fee Requirements fir Installment Agreements: 49
    • Increase Information Shareing to Administer Excise Taxes: 150
    • Repeal of Partnership Technical Terminations: 220
    • A description of each of these categories is at
    • https://www.finance.senate.gov/imo/media/doc/3.8%20RESA%20Section-by-Section.pdf

     

    Submitted by Alan - IRA critic on Tue, 2019-08-13 15:50

    Thanks.  With respect to the excise taxes, they could probably pay for the entire bill if they just enforced the existing RMDs for owners and beneficiaries, whether subject to stretch limitations or not. The IRS has been pledging to do that for several years now, yet it never happens. With respect to the 50% excess accumulations excise tax, the IRS waives or otherwise fails to collect most of them, perhaps because they are so punitive. If they cut the tax to 20% and cut out the waivers, they could probably pay for the bill without curtailing the stretch at all.

    Submitted by Chuck 2009x on Tue, 2019-08-13 17:43

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