The Proposed SECURE Act - End of the Stretch IRA

Posted August 20, 2019 by John Posey 

The proposed SECURE Act has passed the House and now awaits Senate approval so keep in mind we’re still in proposal stage but here’s a little preview of a few of the changes. The legislation would raise the required minimum distribution age from 70 ½ to 72 years old, allow opportunities for more long-term savings by raising IRA contribution limits but signals the end of Stretch IRA planning for IRA beneficiaries. The Stretch IRA refers to the ability of an IRA beneficiary to “stretch” required minimum distributions from inherited IRAs over their life expectancy rather than take immediate lump sum distributions. The new rule would require non-spouse IRA beneficiaries to take a full distribution from an inherited IRA within ten years with no annual required minimum distribution.

For most IRA owners, this probably won’t have much impact on their bequests to heirs. Let’s face the ugly truth, some beneficiaries will have the money spent before the body is cold! But this change could be significant for those with very large IRA and qualified plan balances($1M plus) left to kids and grandkids where all parties are interested in minimizing a tax bite. If this legislation comes to pass, I expect some planning opportunities will arise involving Roth conversions and tax bracket management strategies in efforts to mitigate tax implications. Those with a significant amount socked away in retirement funds would be wise to review their estate plan if the SECURE Act becomes official, which would be effective after 2019. Check out the article below for a summary of the proposal.

https://money.usnews.com/money/retirement/iras/articles/what-is-the-secure-act

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