On September 21, 2016, the Senate Committee on Finance voted 26-0 to effectively kill the “stretch IRA”. The ax has fallen and retirement and estate planning for individuals with significant IRAs will never be the same.
Though nothing is 100%, the chances of this vote becoming law is very high because it of the unanimous vote. What the proposed law says is that if you die on or after December 31, 2016 and leave your IRA to your children or grandchildren (or anyone other than your spouse), your beneficiary (with two major and two minor exceptions) will be required to pay income tax on the inherited IRA within five years of your death. This change is in sharp contrast to the current law that allows your beneficiary to “stretch” the Required Minimum Distributions from an inherited IRA over their lifetime, and continue benefiting from its tax-deferred growth. Not only will the proposed accelerate income taxes, but if the inherited IRA is large enough, the accelerated income is likely to be taxed at a very high income tax rate.
For the last several years, James Lange, a best-selling author in the IRA and retirement plan world, has known this day would come. Though references to the death of the stretch IRA have rarely been found in literature, Jim kept insisting this day was coming. He wrote two peer-reviewed articles that were published in the January and February 2016 editions of Trusts and Estates Magazine, and has given talks about it for the last several years. Most recently, he was asked to make a presentation about the death of the stretch IRA to an audience of 400 estate attorneys and other professionals at the prestigious Retirement and Estate Planning Forum in San Diego. His message has been to prepare IRA owners and their advisors on the coming change and more importantly, what they should do about it right now.
The Ultimate Retirement and Estate Plan for Your Million Dollar IRA was written to let IRA owners know about the proposed change to the law. It has a detailed explanation of the current law and compares it to the proposition that Congress is voting on right now. More importantly, it provides an action plan for IRA owners that they can follow now and after the new law passes. It also distills the best classic advice from Jim’s 402-page best-selling book Retire Secure!
The book was written and went to press before the Committee vote on September 21, 2016. In general, the specifics of their proposition were remarkably similar to what Jim has outlined in this book. There is, however, one significant difference between what he anticipated the law would look like and the proposal that the Finance Committee passed unanimously and presented to Congress. Their proposition contains an exclusion of $450,000 (indexed for inflation) per IRA owner. This means that the non-spousal heirs of an IRA owner can still take advantage of the old “stretch IRA” laws for $450,000 of the IRA, but will be required to pay income taxes on any amounts over and above the $450,000 within five years of the IRA owner’s death.
This exclusion allows additional planning techniques that are not included in this book. The author wrote a special addendum to the book that is available at no cost and can be found at paytaxeslater.com/addendum.
This is a short book. If the reader wants the full explanation of all the recommendations and the reasoning behind the recommendations, the reader would be better advised to read the 402 page Retire Secure! and the addendum mentioned below.
The Ultimate Retirement and Estate Plan for Your Million Dollar IRA is an important book for all IRA owners, but it is critical for married IRA owners with an IRA or retirement plan valued at more than $450,000.
