
On December 20, 2019, President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act with overwhelmingly bipartisan support. In so doing, the most comprehensive retirement bill since the Pension Protection Act of 2006 became law. Among the SECURE Act’s many provisions comes some potentially bad news for many Wealthfront clients, and it’s important that you’re aware of it.
The law expands opportunities for individuals to participate in efficient employee retirement plans, but it also eliminates stretch individual retirement accounts (IRAs). This part of the legislation is an unwelcome change for some individual retirement savers.
Why it matters
Prior to the passage of the SECURE Act, individuals who inherited a Roth or traditional IRA were subject to required minimum distributions (RMDs) based on life expectancy. This allowed beneficiaries to continue growing the IRA in a tax-deferred manner over the course of their lives. For example, a young beneficiary would have a lower RMD and could potentially stretch the tax-free growth of the inherited IRA over decades — hence the term stretch IRA.
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