If Congress gets its way, American’s IRA and 401k-retirement savings plans could see significant changes.
“Everything Is On The Table” – Those are the words coming from a recent White House meeting on Trumps tax plan.
Congress has attempted this before, but now, with “Everything Is On The Table”, the retirement savings of American’s may come under fire.
Right now, Trump’s tax proposal has changes to the way homes and other real property is taxed. Currently, when a person dies, any gains in real estate or other investments sold in the estate are income tax free. This is called a step-up in tax basis.
According to a CNBC report, Trump wants to eliminate the tax-free step up, and make the estate pay taxes on the gains.
Congress Targets IRAs, 401ks For Decades
For years Congressional lawmakers have pushed for changes in the way 401k, IRA and other retirement plans get taxed. They want to accelerate the way Americans draw money out of these plans to cause more taxes to be paid.
This makes total sense because of Washington’s desperation to find more money.
But here is how the first attack on American’s retirement savings would happen.
Currently, the non-spouse beneficiary of an IRA can inherit it, without having to pay taxes on the entire amount. This is known as a stretch IRA. The effect of the stretch IRA is that it holds off having to pay income taxes on the distribution from the inherited IRA over the life of the beneficiary.
Congress hates the stretch IRA as it defers the receipt of taxes on the money.
Dead Men Can’t Talk
Congress knows that death is the ideal time to for a money grab. There is no Lobby that fights for dead people. That’s why this is an easy target. Dead men can’t talk or fight for their money.
Congress wants to eliminate the stretch IRA. They want to change the rules of the game. Since the IRAs and 401ks are created by Government, they hold the rule book.
Congress wants to eliminate the stretch IRA, and replace it with a 5-year rule. They want to accelerate the taxes due on the inherited IRA and force the money out of the account in 5 years, instead of decades.