Killing the stretch IRA in the latest House and Senate retirement bills "would create unnecessary complexity for inheritors and planners," according to IRA expert Ed Slott, and would be a "revenue loser" as investors would choose more tax-efficient strategies. "Some larger IRAs would have to be paid in a short time after death, creating problems for parents who might worry about the funds not lasting," Slott told ThinkAdvisor on Friday. Further, "trusts could be set up, but still the IRA funds would be paid to the trust in a shorter period and get hit with high trust taxes on funds not distributed from the trust."
The House bill, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, limits post-death payouts to beneficiaries to 10 years, while the Senate Finance Committee's Retirement Enhancement and Savings Act (RESA) of 2019 sets a five-year payout limit for balances above $400,000. Lawmakers "think that's going to pay for everything else. Most beneficiaries don't even last the 10 years. They [lawmakers] think they're going to get all this money," he said. "I think it's a revenue loser." By eliminating the stretch IRA, "I think it's going to push advisors to provide better, more tax efficient options like doing life insurance instead, which is tax free, which you can push through a trust and create your own stretch." Slott reiterated his previous concerns that getting rid of the stretch IRA would also hurt Roth conversions for older people. However, the provision is likely to pass, he said, because "there is no beneficiary's lobby or people parading in front of the White House with 'Save the Stretch IRA' signs." As to the prospects for both bills getting through the House and Senate and passed into law, Slott opines that "there's no hot-button issue that's going to kill either one of them, unless they gunk it up with other things." Read the gallery above for five other areas of the bills where Slott gives a thumbs up or thumbs down. --- Related on ThinkAdvisor:
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