Presently, if an IRA owner does not fully withdraw the balance of his IRA during lifetime, his or her heirs may be able to spread the withdrawal of the inherited IRA over the life expectancy of the recipient. By being able to slow down the required distributions, the taxation of the income that has been deferred from income tax within the IRA will be deferred further and spread over an extended period of time. Such IRAs are referred to as “stretch IRAs.”
A provision of the Retirement Enhancement and Savings Act of 2016, which cleared the Senate Finance Committee in September by a vote of 26-0 and which was introduced to Congress in November, seeks to limit stretch IRAs. Under the proposed legislation, IRA balances of an individual that aggregate over $450,000 will need to be distributed within 5 years of the death of the account owner, except in regard to distributions to the surviving spouse of the owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the owner, or children of the owner who have not yet reached the age of majority. The proposed Act has other provisions, some of which are taxpayer friendly – you can review a summary here.
Will this make it into law next year? Historically, there is a strong likelihood of passage when a bill clears the Senate Finance Committee by unanimous vote.