An individual retirement account (IRA) is a savings account that is granted large tax breaks to allow individuals to save for retirement more efficiently. There are several strategic types of IRAs but among the most controversial is the stretch IRA, which allows an estate planner to extend the IRA beyond an individual’s retirement and across multiple generations.
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Ed Slott, CPA and writer of "Parlay Your IRA into A Family Fortune,"
told AARP that "a stretch IRA is one of the biggest benefits of the tax code." The stretch IRA can allow parents to start helping their children prepare for retirement by removing money from their account in small, as-needed increments rather than in a single large amount. The IRA owner then must name a beneficiary for the remaining money in the IRA. It is then the beneficiary who proceeds to stretch the account over their lifetime.
The future of the stretch IRA may be in danger. In voting to extend lower interest rates on student loans, Congress voted in 2013 to limit stretch IRAs. This is not the first time the government has considered limiting stretch IRAs. Several of the Obama Administration’s budget proposals have suggested limiting nonspousal stretch IRAs so that children or grand-children named beneficiaries have only five years to empty the given savings account.
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Sen. Tom Harkin (D-Iowa) maintains that “millionaires and billionaires can pass on millions in their IRAs to their heirs without paying taxes for years,”
telling Forbes that stretch IRAs are “a loophole” that “has to be closed.”
Congress’ Joint Committee on Taxation estimates that the Obama Administration’s proposed stretch IRA limits could raise $4.6 billion in the next 10 years. However, Slott is not worried about the future of retirement savings structures like stretch IRA. He
told USA Today that people saving in the long term for retirement vote, and so “those entities will not be touched. They will talk about it. They will just trim around the edges” because “nobody wants to touch that.”
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