The Senate Finance Committee voted 26–0 to eliminate the stretch IRA for non-spousal beneficiaries. Currently, using a stretch IRA limits required distributions for inherited IRAs, avoiding a substantial tax bill in the process. An account holder can name a child, grandchild, or great-grandchild instead of a spouse, allowing withdrawals to stretch out over time and accumulation of tax deferred growth. The new proposed bill—the Retirement Enhancement and Savings Act—requires beneficiaries of an inherited IRA to pay all taxes within five years of the account holder’s death. This stretch IRA elimination will likely be inserted into a tax reform bill during Trump’s presidency. If the bill does pass, many financial advisors will need to retool their clients’ estate plans. Life insurance trusts and charitable remainder trusts are sufficient alternatives to stretch IRAs for wealthy clients.
See Ian Shearn, Stretch IRA: Are Its Days Numbered?, Financial Advisor, December 23, 2016.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.
