With the federal government looking for any and all ways to generate revenue, there’s speculation that stretch IRAs are likely to be cut, according to a recent article by two law professors. Stretch IRAs allow a beneficiary to take either a lump sum payment or withdraw over a number years based on RMD rules and their beneficiaries’ ages. Meanwhile, the IRA continues to grow tax free. Critics argue that stretch IRAs go beyond the intent to incent people to save for retirement, and have become a wealth transfer tool.
The proposals include limiting beneficiaries to spouses and/or a five-year period, thus helping the federal government to generate more revenue. Advisors might recommend that clients make their spouses their main beneficiaries or convert traditional IRAs to Roths.
