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September 25, 2018 at 09:31 AM
A little-known provision in the bipartisan Retirement Enhancement and Savings Act (RESA) legislation includes a revenue-raising measure that would curb the tax deferral benefits of “stretch” IRAs, according to Andy Friedman of The Washington Update.
Friedman writes in a recent white paper that The Family Savings Act of 2018, H.R. 6757, which incorporates many of the RESA provisions and is part of the House Ways and Means Committee’s three-pronged “Tax Reform 2.0″ package, does not include the provision curtailing the availability of stretch IRAs that’s discussed in RESA.
The House Rules Committee plans to set the rule for debate Wednesday on the tax package with an expected House floor vote Thursday. But RESA has a far greater chance of being enacted, likely before the end of the year, according to Friedman.
Under current law, beneficiaries who inherit an IRA or 401(k) account upon the death of the account owner can choose to take payments over their expected lifetimes, Friedman explains, with amounts remaining in the retirement account continuing to accumulate tax-deferred.
“This ability to ‘stretch’ inherited retirement assets provides significant tax deferral benefits,” he said.
However, RESA would limit “stretches” to aggregate account values under $450,000.
“To the extent an individual’s aggregate IRA and 401(k) account value exceeds $450,000, the excess must be distributed (and the associated income tax paid) within five years of the death of the account holder,” Friedman writes, unless one the beneficiaries is:
- the spouse of the deceased;
- disabled or chronically ill;
- less than 10 years younger than the deceased; or
- a child of the deceased who has not reached the age of majority.
Friedman notes that there’s a chance the “stretch” provision could be dropped from the bill before RESA is enacted.
