Stretch IRAs are an important tax and estate planning tool for many wealthy people. They allow a non-spousal beneficiary to inherit an IRA account and stretch any taxes owed on it throughout their lifetimes. This allows for more funds in the account to be used to grow wealth than would be possible if taxes were due immediately.
Many members of Congress have long sought to eliminate this possibility, but their attempts have failed.
The Senate Finance Committee has now voted to eliminate stretch IRAs by making all taxes due within five years of inheritance, as Financial Advisor reports in "Stretch IRA: Are Its Days Numbered?"
The legislation is unlikely to pass on its own, but it still stands a good chance of becoming law as part of a larger tax overhaul that Republicans in Congress are expected to propose. For that overhaul to work, the Republicans hope it can be presented as revenue neutral overall.
They want to have any tax cuts paid for by raising other revenue, cutting spending or covered through expected financial growth. Although the revenue consequences of eliminating stretch IRAs are disputed, some believe it could bring in billions more per year. As a result, it is likely to be included as a way to help pay for other tax cuts.
If this does become law, many wealthy people will want to revisit and update their estate plans as soon as possible.
Reference: Financial Advisor (Dec. 23, 2016) "Stretch IRA: Are Its Days Numbered?"