The War on Stretch IRAs and Other Strategies Continues

Leading up to the Tax Cuts and Jobs Act, there were a number of proposals to eliminate strategies and benefits involving IRAs and other retirement accounts.

Changes proposed included eliminating the Stretch IRA, reducing the maximum contributions to IRAs and 401(k)s, ending inflation indexing of the contribution limits and eliminating catch-up contributions for high-income individuals. There also was much support for ending the upfront tax benefits of IRA and 401(k) contributions, essentially allowing only Roth versions of the plans going forward.

None of these ideas made it into the final legislation.

All of the ideas are likely to be proposed again soon with a lot of support behind them, according to a report in Tax Notes Today. According to the publication, a lobbyist for Save Our Savings
Coalition reported in a recent speech to a group of tax lawyers that numerous members of Congress said in 2017 that the provisions probably wouldn’t make it into the 2017 law but would be revisited soon after.

I’ve been warning about the war on Stretch IRAs and other retirement tax attacks for several years. I’ll continue monitoring developments and keep you up to date. Of course, I also will continue to be proactive, proposing strategies for you to avoid potential changes in the law and enhance your financial independence even if the law isn’t changed.

It is important to act before any changes are enacted, and there are strategies to consider today. For example, I highlighted the war on Stretch IRAs and proposed strategies to avoid it in our May 2016 issue. I’ll be updating these strategies and searching for new ones as Congress continues
to fund deficits from the retirement savings of those who don’t stay a step or more ahead of the changes.

You also should have tax diversification. Have different types of investment vehicles (traditional IRAs, Roth IRAs, taxable accounts and insurance products) so you’re hedged against changes in the tax law. We discussed that in past issues and will discuss it again in the near future.