An editorial in The Wall Street Journal criticizing the elimination of the “stretch IRA” in the Secure Act retirement bill is sparking a lively debate among retirement industry officials.
The opinion piece, IRAs in Political Sights, argues that “putting money into a 401(k) or Individual Retirement Account is an act of trust in government. When yesterday’s politicians set rules to encourage saving, workers must have faith that tomorrow’s politicians won’t raid the kitty. Protecting this confidence ought to be top of mind as the Senate takes up the bipartisan Secure Act.”
The Journal’s editorial board concludes that the Secure Act “has useful elements, but the Senate should find a different way to pay for it. Speeding up the taxes on heirs is a bad precedent.”
IRA expert Ed Slott has previously warned that killing the stretch IRA in the Secure Act “would create unnecessary complexity for inheritors and planners,” and would be a “revenue loser” as investors would choose more tax-efficient strategies.
“People have to have a set of rules to rely on long term; they can’t be at the whim of Congress,” Slott told ThinkAdvisor in an interview Thursday morning.
“It’s a very bad policy when people are making long-term financial decisions, and that’s what retirement is — it’s not for tomorrow or next week, it’s for long term,” Slott continued. Investors “have to have a stable, sustainable set of rules to rely on, and Congress is mucking that up by throwing the monkey wrench in and changing the rules.”
The House passed the Secure Act on May 23 by a 417-3 vote. The provision regarding the stretch IRA is in the back of the bill, under the revenue section as a “pay for” provision.
Congress “[thinks the stretch provision will] pay for it; that they’ll get all this money, but many people don’t stretch these IRAs as much as they [Congress] think anyway,” Slott said. “And people will look for other alternatives because Congress is always playing catch-up. Advisors will be ahead of the game and give clients better, more sustainable long-term plans” via life insurance, charitable trusts or Roth conversions. “Congress will end up with less money and beneficiaries will end up with more — they’ll get larger inheritances with less tax because now Congress has forced people to do the better or tax-efficient planning they should have been doing all along.”
With the Secure Act now held up in the Senate, “somebody should get to someone in the Senate and say: ‘maybe that’s not a good provision,’” Slott said.