Planning for the Demise of Stretch IRAs

Senate Democrats recently voted to fund a one-year interest breakfor student loans for low-income students by limiting stretch IRAs, which allow retirement account owners to name children as beneficiaries who can then enjoytax-free or tax-deferred growth by stretching out withdrawals during theirlifespan.  The proposed limits on stretchIRAs would require inherited retirement accounts to be distributed within five yearsof the owner’s death, not including spouses.

Here are four steps to take if limits on stretch IRAs areput in place: 

1. Change your beneficiary designations ifnecessary.
2. Think twice about taking the current tax hit ofa Roth conversion.
3. Ensure you’re holding the right investments intaxable investment accounts and the right investments in tax deferred retirementaccounts.
4. Review planned charitable bequests to ensurethey still make good sense.

See Janet Novack, 4 Steps to Take Now That Stretch IRAs AreEndangered, Forbes, July 11, 2013.