By Sarah Brenner, JD
The Setting Every Community Up For Retirement Enhancement (SECURE) Act recently passed the House of Representatives by a large margin. It is currently stalled in the Senate. This bill includes a multitude of provisions that would reshape retirement savings if passed. Buried deep within the proposed legislation is a provision that would do away with the stretch IRA for most beneficiaries. We have received many questions on this provision. Here are a few of the most common:
1. Question: Would the provisions in the SECURE Act eliminating the stretch apply to Roth IRAs as well as Traditional IRAs?
Answer: Yes, the SECURE Act would eliminate the stretch for both inherited Traditional IRAs and Roth IRAs.
2. Question: Would the SECURE Act eliminate the stretch IRA for existing inherited IRAs?
Answer: No. If the IRA owner is already deceased and there is an existing inherited IRA, the SECURE Act would not eliminate the stretch. Existing inherited IRAs would be grandfathered.
3. Question: Why does Congress want to eliminate the popular stretch IRA provision?
Answer: While it’s hard to completely understand Congress’s motives here, one thing is clear. Congress sees the elimination of the stretch IRA as a revenue raiser. To lawmakers, including this provision in the bill offsets the costs of other provisions.
4. Question: When would the provisions eliminating the stretch be effective?
Answer: The bill as currently written would make these provisions effective for inherited IRAs when the IRA owner dies after December 31, 2019.
5. Question: What would replace the stretch option for IRA beneficiaries?
Answer: Most non-spouse beneficiaries would be required to distribute the inherited IRA by the end of the tenth year following the year of death. This ten-year rule would work similarly to the way the current five-year rule works. During the ten-year period there is flexibility. No yearly distributions are required but the account must be emptied by the end of the tenth year.
6. Question: Would spouse beneficiaries still be allowed to do a spousal rollover under the SECURE Act?
Answer: Yes. Spouse beneficiaries could still do a spousal rollover to an IRA in their own name.
7. Question: Will the SECURE Act become law?
Answer: No one knows for sure! There is a lot of support for many of the provisions in the SECURE Act and it did pass the House by a large margin. However, it still has to get through the Senate and be signed by the President. That can be long road. Stay tuned to the Slott Report! We will be watching this proposed legislation carefully over the upcoming months and will keep our readers up-to-date with any late breaking news.