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  • Bob Brooks

Politicians Are About to Get Rid of the Stretch IRA

OK, first, what is a stretch IRA? Should this be a concern?

When a person dies, their IRA goes directly to their spouse without restriction through the use of a beneficiary designation. Once the surviving spouse passes, then the IRA typically goes to the kids. Unfortunately, there are some restrictions on that money. The rules say that you have two choices. First choice is to take all of it out over a 5 year period of time. That could be worth some hefty tax bills. Second, you can create a stretch IRA where you take a small percentage out each year for the rest of your life. Thus, you get to leave the bulk of the money in the IRA.

The stretch IRA gives you the best tax scenario for sure. Well, the politicians are trying to get the Secure Act passed in Congress. This act is supposed to help reform the retirement situation in America. Basically it boils down to two different objectives. First, to provide workers with a retirement account whether they are part-time or full-time. They are wanting to make sure Americans have access to the tools to save money. Of course, this is an easy fix. Expand the IRA and make it work like an individual 401 (k) plan. It would be very easy to do. Unfortunately, the obvious doesn't always work in Washington or it works but it's not politically acceptable. Second, it is to make annuities available in 401 (k) plans.  

Buried in the act is the elimination of the stretch IRA. Supposedly they are doing away with the two options and giving you 10 years to take the money out. Side note: the politicians have spent a lot of energy and time on this act. I have to tell you it is one of the most WORTHLESS pieces of legislation that has come out of Congress in a long time. As someone who talks about the issues daily, I can guarantee you that there are much easier fixes than what they are doing. Oh, and it doesn't even touch social security - probably the biggest retirement problem that we have.

Sorry, back to the subject at hand - of course, this has a lot of people crying foul. Personally, I don't have any problem with it. The government is going to have to increase taxes. I would rather see them start with the items on the edges then go straight for the increase in income tax rates. There is going to be an enormous amount of money transferring to future generations in the next few decades. That amounts to a future tax grab for Washington. Of course, they are smart enough to see that one. 

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