Retirement industry officials are gearing up to remove a provision in Senate legislation that would reduce the value of inherited IRAs.
The provision is included in S. 1813, the Highway Investment, Job Creation and Economic Growth Act.
William Sweetnam, a member of the Groom Group and a former top Treasury Department official during the Bush administration, said the provision is likely to be removed, and replaced with one that raises the funds being sought by changing the way assets are valued in defined benefit plans.
He said they are known as “stretch IRAs,” and are sometimes used to reduce taxes by people who designated a young person as the beneficiary, thereby giving them a long opportunity to increase the value of the IRA through inside buildup.
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It was added to the highway bill by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, on Feb. 7 during markup of the bill by his committee.
The bill is now awaiting floor action, and the Financial Services Institute, the Insured Retirement Institute and the National Association of Insurance and Financial Advisors are all seeking to mobilize their members to have it removed from the bill.
As currently stated in the bill text, the provision would no longer permit tax-deferred stretches of IRAs for beneficiaries other than a spouse, minor children or the disabled.
Others, like adult children, would only be permitted a five-year window to defer.
He wanted to use the money to help pay for a highway bill the panel is debating.
According to budget officials, the provision would raise $4.6 billion over 10 years.
Industry officials said the proposal would reduce the value of a tax-planning technique that allows inside buildup of tax-deferred funds inside inherited retirement accounts.
At the markup where the provision was added, Baucus said, “IRAs are intended for retirement.”
He charged that the current law is being abused. “They’re being used by some taxpayers to give tax-free benefits” to future generations.