The legislation would also for the first time mandate lifetime income disclosure for defined contribution plans to show investors how much income their lump sums can generate.
The bill would also help parents who are having a child or adopting by allowing them to make tax-free withdrawals from retirement plans to cover related expenses.
One potential downside for advisors and their clients is that the legislation would remove “stretch” IRA provisions for inherited retirement plans like 401(k)s, traditional IRAs and Roth IRAs. In the past, beneficiaries of these accounts could typically spread the distributions over their own life expectancy.
However, the bill includes what is viewed as a tax-generating provision that would require most beneficiaries to distribute the account over a 10-year period. This change would accelerate the depletion of inherited accounts for many large IRAs and retirement plans.
The end of the “stretch” IRA is a nod not only to the need for revenue, but also to a recent Supreme Court decision that has ruled that inherited accounts are not “retirement” accounts.
McConnell’s spokesman did not immediately respond to a request for comment.