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Senate Targets “Stretch” IRA’s for Elimination

The Senate is considering eliminating the “stretch IRA”,  a popular estate planning strategy that allows a beneficiary of a non-spouse IRA to  stretch out required minimum distributions (RMD) over their life expectancy. The provision requires inherited IRAs to be distributed within 5 years of the original owner’s death.

The provision is included in the “Highway Investment, Job Creation and Economic Growth Act of 2012” currently before the Senate Finance Committee.

According to Michael Kitces, CFP, author of the Nerd’s Eye View, “The most direct implication of the new rules is that the opportunity to maximally stretch an IRA for the next generation may be significantly curtailed.”

Spouse beneficiaries will still be eligible to stretch. The stretch rules will no longer be available to any beneficiary old enough to be within 10 years of the decedent’s age, nor any beneficiary young enough to be a minor.

Says Kitces, “The new rules appear to be targeted squarely at preventing the stretch IRA during a generational shift from the original owner to the decedent’s adult children.”  You can read more here.

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