The first major legislation to encourage widespread retirement savings in a decade has a plethora of goodies, but there is also a cost.
To pay for the bipartisan legislation, known as the “SECURE Act,” lawmakers in the House of Representatives would force those who inherit IRAs (other than spouses and some other inheritors) to empty the tax-free vehicles within 10 years, which could increase the tax burden.
In a year when a growing number of Democratic presidential contenders’ proposals would tax stock transactions or private equity deals, some on Wall Street believe that reneging on retirement planning promises sets a dangerous precedent.
Prominent among the critics is The Wall Street Journal, which yesterday published an editorial chafing at Congress’s targeting of stretch IRA benefits.
“Forcing some heirs to empty accounts in 10 years will raise revenue, but it’s a bad precedent,” the Journal said. “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.”
About one in every four IRA fund dollars would be affected by the accelerated IRA payout requirement. There was $9.2 trillion in IRAs as of 2017, out of a total of $28 trillion in retirement accounts, which can be rolled over to IRAs.
The bill (whose full name is the “Setting Every Community Up for Retirement Enhancement Act of 2019”) faces little opposition as the Senate also prepares to take up consideration of the reform effort, which makes big changes to 401(k) plans and IRAs.
Insurers Make Out
In fact, there are a number of benefactors of the bill, among them the insurance industry, as the act would allow retirement plans to offer employees annuity options in their 401(k)s for the first time.
The American Council of Life Insurers, which represents some 280 insurance companies, immediately responded to the Journal’s concerns yesterday.