Stretch IRAs Under Fire

The FSI said in a letter to members that Baucus has apparently backed off from supporting the provision. “While we expect the provision to be removed from the highway bill, it is important that we send the Senate the message that taxes on inherited IRAs should not be used to pay for other governmental spending,” FSI officials said.

In a statement, IRI president and CEO Cathy Weatherford added in a letter to members of the Senate that “While IRI applauds the efforts of the United States Congress, a highway bill is the wrong vehicle for such a significant tax increase on retirement savings. We request that you oppose inclusion of these provisions in the final bill.”

Weatherford said in the letter that “Today’s workers face unprecedented retirement income challenges – challenges that simply did not exist in earlier generations.”

She said that the shift from defined benefit to defined contribution plans, longer life spans, and the rising costs of healthcare are among the challenges that will put more of the burdens on saving for retirement on the shoulders of American workers.

“We believe these important issues should only be addressed after more extensive study and debate,” Weatherford added.

Sweetnam said that the provision is widely used by those who engage in estate-planning – in other words, those who will be subject to estate taxes.

But, he also defended Baucus’ intent.

He said that under the current proposal, spouses, minor children and disabled children would still be able to retain the benefit of the long-term inside buildup.

Only grown children, for example, would be affected, “and from a public policy standpoint, they are the people who would get the least sympathy for being forced to accelerate their taking out funds from the IRA.”

Meanwhile, NAIFA said it is “concerned” that this proposal would have an unintended harsh impact on middle-income Americans who are struggling to save enough for retirement on their own.

Lillian Vogl, counsel, federal relations at NAIFA, gave this as an example:  “A NAIFA member told me about a 49-year-old elementary school teacher he worked with last year. She is divorced, two kids going to college with Pell grants, and only about $10,000 in retirement savings of her own. She inherited a $100,000 IRA when her mother died. Under current law she only has to take out a couple thousand a year, and most of it remains for her own retirement.”

Vogl said the five-year forced payout would cost this teacher at least $3,000 a year in additional taxes, probably disqualify her kids from their financial aid, and that money wouldn’t be there when she retires. “That is not the intended impact for middle-market Americans.”