The Death Knell for Stretch IRAs Has Tolled

On May 23, 2019, the U.S. House of Representatives passed H.R. 1994, also known as the SECURE Act. The Senate is expected to pass a similar bill known as the Retirement Enhancement Savings Act, aka RESA.

Key provisions of the SECURE Act include:

-Increasing the beginning date for required minimum distributions (RMDs) from 70 ½ to 72;

-Repealing the maximum age for contributions to traditional IRAs;

-Adding exceptions for penalty-free withdrawals by an account owner; and

-Requiring certain beneficiaries to withdraw inherited account balances within 10 years of the account owner’s death.

The requirements of this last bullet point has estate planning attorneys concerned. Currently, “life expectancy” rules effective when an account owner dies allow non-spouse beneficiaries to “stretch” required minimum distributions (RMDs) over their individual life expectancies. So, many estate planners include “conduit” provisions in their clients’ trusts to ensure the trust will qualify as a designated beneficiary of a retirement account, even though the RMDs are still passed through to the trust’s primary beneficiary using their life expectancy and taxed as income to that beneficiary. The new law will make conduit trusts ineffective after 10 years.

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