Trying to keep up with changes in legislation is probably the last thing I enjoy
doing, but the twists and turns of one piece of potentially sweeping new
legislation have caught my attention.
Three months ago, we discussed that the House of Representatives overwhelmingly passed a new retirement bill that would address several topics, most notably the timing of Required Minimum Distributions (RMDs) and the rules around inherited IRAs.
One of the provisions in the legislation is to increase the age when RMDs must begin from age 70½ to age 72. Given how easily the bill passed the House, many figured passage in the Senate was a done deal.
It appears that some Senators had other ideas, as reports suggested that as many
as six Senators withheld support for the bill for various reasons.
A competing version of retirement plan reform was introduced in the Senate, the Retirement Savings and Security Act (RESA).
While the initial hopes among advocates of the bill were that the two bills could be reconciled, the holdout Senators prevented that.
RESA is a much broader law than the House bill, containing more than 50 provisions designed to promote more retirement savings.
Of particular interest to seniors are changes to the RMD rules. Under RESA, RMDs would be delayed to age 75 and eliminated for retirement accounts up to $100,000.
Common to both bills (as one of the primary mechanisms for raising the revenue lost by delaying RMDs), is the elimination of the “stretch” IRA, which allows non-spouse beneficiaries to take RMDs over their entire lifetime.
The House bill requires that an inherited IRA be fully distributed within ten years of the original owner’s date of death (with exceptions for minors and disabled persons). RESA has similar provisions that also require the IRA to be distributed within a certain amount of time.
I must say in conversations with senior clients, the thing that has surprised me
the most is their extreme opposition to the possible elimination of the stretch IRA.
These clients say they are appalled with the idea that, after putting savings into
retirement accounts over an entire lifetime, they may not be able to have those
assets remain in retirement accounts for their children over the long term.
Their disgust for this new twist has dwarfed any gratification from potentially being able to delay RMDs.
As always, we will stay on top of future legislative developments in the coming months.
David Novak, CFP® is a Certified Financial Planner™ at Novak & Powell Financial Services in Pinellas County.
Please note: he is not an attorney and this article
should not be construed as one offering legal advice.
For information about investment decisions and
financial planning, contact him at (727) 451-3440.