“Only the wealthiest of Americans, less than one percent, use the ‘stretch IRA’ for estate planning,” said ACLI President and CEO Susan Neely in a statement, adding that the stretch IRA part of the bill shouldn’t derail the entire package, which was meant “to help millions of working Americans save for retirement.”
The SECURE Act “will get more than 700,000 Americans who work for small businesses to save for retirement,” Neely said. “The Senate should seize the historic opportunity at hand to pass this bill and confront America’s retirement savings challenges.
“Low and middle-income Americans struggling to save for retirement are depending on the U.S. Senate to pass the Secure Act.”
One of the act’s provisions is to allow employers to use auto-enrollment. It also requires employers to cover certain part-time employees, and it reduces employers’ liability for plans. Additionally, the bill eliminates the age 70½ limit on IRA contributions and delays mandatory distributions until age 72.
The Secure Act also allows penalty-free early withdrawals of $5,000 to be made from 401(k) plans when a child is born or adopted.
To pay for the benefits, the Journal said, the act “pays for itself, though only by suddenly curtailing tax benefits on retirement assets passed down to children, grandchildren and other non-spousal heirs. New rules would apply to account holders who die starting in 2020.
“For people with significant money, this could upend years of careful estate planning,” the Journal wrote.
Speeding Up Liability
Currently, a baby who inherits his grandmother’s IRA can “stretch” the mandatory distributions over the grandchild’s lifetime. That allows for longer tax-free growth, giving legacy-minded investors a way to build family wealth. The new legislation, on the other hand, would require inherited IRAs to be emptied within 10 years, speeding up the tax liability and potentially pushing heirs into higher tax brackets.
Fidelity Investments alone said that 180,000 of its account holders are millionaires; that includes 168,000 IRA millionaires, plus another 22,000 educational workers and nonprofit staff.