Government Spending Deal Includes Retirement Reform Legislation that Eliminates Stretch IRA
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The government spending deal reached by Congressional Republicans and Democrats includes the SECURE Act (H.R. 1994), retirement reform legislation that was passed by the House of Representatives earlier this year but had stalled in the Senate.
The SECURE Act includes several provisions designed to help make it easier for workers to save for their retirement, like providing new tax credits for employers that establish new retirement plans with automatic enrollment and removing the age limitation for contributing to IRAs. However, in order to pay for those provisions the SECURE Act eliminates what is known as the “stretch IRA.”
A stretch IRA extends the tax-deferred status of an inherited IRA when it is passed to a non-spouse beneficiary, like a child or grandchild, allowing for continued tax-deferred growth over the inheritor’s lifetime. This provides the inheritor with a steady stream of income while also spreading out the tax they must pay on the IRA distributions. The SECURE Act limits the stretch period for IRAs to 10 years for the vast majority of non-spousal beneficiaries, requiring the account to be fully distributed—and the inheritor to pay the full tax on those distributions—within that timeframe. This would deprive inheritors of potentially decades’ worth of investment income and would also greatly increase their tax burden.
TIA supports many pieces of the SECURE Act but opposes the elimination of the stretch IRA because it changes the rules of the game for people who have been making retirement and estate planning decisions based on current law. TIA met with several Senate offices over the past few months to build support for amending this part of the SECURE Act; while there was some interest among Senate offices, ultimately Congress decided to move forward with the bill in this year-end spending deal.
TIA held a webinar last month on the SECURE Act and the elimination of the stretch IRA, which you can watch here. If you have any questions, please contact TIA Advocacy at advocacy@tianet.org or 703.299.5700.
