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What is The Death of the Stretch IRA? - YouTube
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Hello this is Jim Lange, and I'd like to talk
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about the proposed legislation known as
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the "Death of the stretch IRA". First what
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is a stretch IRA? A stretch IRA is the
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ability to at least somewhat defer
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income taxes on your IRA. When I say IRA
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we're going to include; IRA, 401k
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403(b), SEP, KEOGH, 457 plans, other types
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of qualified retirement plans money that
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you have not yet paid income tax on but
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someday somebody will unless you leave
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it to a charity. But anyway the stretch
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IRA is the ability for typically a non
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spousal heir most likely your children
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or child to continue the tax deferral
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feature of the inherited IRA after you
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die. Now in a more basic video I always
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say 'Don't pay taxes now pay taxes later'
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except for the Roth and the accumulation
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stage the distribution stage and the
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estate planning stage. So this is the
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estate planning stage and under current
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law your heirs that say typically
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children
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assuming everything is done right which
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means that it was drafted correctly
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before you died and you have the
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appropriate estate administration after
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death typically your children are better
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yet even your grandchildren in the form
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of a trust could take very small what
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starts out as very small distributions
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for which they have to pay tax so that
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means the majority of the inherited IRA
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can continue to grow income tax deferred.
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Which is a wonderful feature and in
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today's the law where most of the tax is
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going to be related to income tax not
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federal estate tax because we now have a
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ten point eight million dollar federal
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exemption for married couples so the key
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to
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planning for at least the vast majority
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of us is not to avoid federal estate tax
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but to avoid federal income tax and
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that's what we're really talking about.
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So the stretch IRA allows your family to
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continues a deferral of income taxes on
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your IRA and retirement plan after you
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die. The death of the stretch IRA refers
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to proposed legislation that will not
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allow your family to continue to tax
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deferral after you die but will make
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your family pay income taxes on the
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entire inherited IRA or retirement plan
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within five years of your death. Well
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this is going to be a pretty devastating
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blow to your family and what I'm going
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to do in the in this video is first talk
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for a minute about how likely it is that
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this proposal actually becomes law and
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then I'm going to give you some idea of
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what it could mean let's say to your
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children after you die. So first to give
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you some idea of the impact; let's take
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an example and let's forget about the
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exceptions and the exclusions for a
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moment. So let's say that you leave a
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million dollars to your child of an
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inherited IRA and let's assume that you
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do this under existing law all right. And
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what we have here is shown in the green
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line, if you can follow it, is a reasonable
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projection using certain assumptions
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which we'll get to in a minute of where
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your child will be over time. So I'm
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assuming your child is 46 years old at
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your death that he gets to defer the
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income taxes to a very large extent over
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the IRA and this will continue literally
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throughout his life. Now let's compare
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using the identical assumption same
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interest rate same incomes and expenses
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same everything else except instead of
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dying under the existing law structure
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you die under the proposed law
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structure where your child is going to
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have a big income tax hit he's going to
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have to pay
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taxes on the entire million dollars, plus
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any growth within five years of your
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death. Instead of having 2.5
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million dollars towards the end of their
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life your child will have 0! So
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basically it's the difference between
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your child or children being
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completely financially secure or
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literally being broke. So the scope of
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this and the impact of this proposed law
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is pretty devastating. So then the next
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question is; 'Okay Jim this is only
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proposed law do I really have to worry
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about it or is this just something that
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you know that you attorneys like to
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worry and scare people?' Well let's take a
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look at how likely this law is going to
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pass. Well first of all this has been a
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rat this proposal has been around for a
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long time. In 2013 President Obama wanted
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it the Republican House wanted it, it was
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only the Democratic Senate that stopped
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at 51-49. And in September 2016 on a
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bipartisan 26 to nothing vote the Senate
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Finance Committee voted to recommend to
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the Senate to abolish the stretch IRA. In
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other words exactly what I was fearing.
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All right now you might say 'Well gee Jim
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you know it's harder to predict what's
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going to happen with future tax
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legislation now that we have President
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Trump in a Republican Congress.' And I
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would agree with that but this is what I
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would tell you; in the past if you had a
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26 to nothing vote by the Senate Finance
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Committee it was basically a done deal.
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It was only a matter of when this was
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going to be passed. We also know that
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both President Trump and the Republican
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Congress wants to cut taxes but we also
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know they need revenue from somewhere to
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pay for all the stuff they want to buy.
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So where are they going to get this? Well
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there's proposed legislation bipartisan
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support 26 to nothing it's already
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drafted all you have to do is just take
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that little chunk of raw, add it to
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whatever tax
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proposal you're going to make because this
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isn't going to be a standalone vote this
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is going to be one part of a much larger
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law and boom! It's in. The way its written now
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is whenever it passes, let's say it
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passes in June or July or but you know
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let's say sometime in 2017 the way it's
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written now is it will apply to any IRA
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owner who dies after January 1 2017. So I
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actually fear that this is going to
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apply to all of us because we're all
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going to die after January 1 2017. So in
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summary I think that this law is coming
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I think it will be devastating to your
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children where we have a series of
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videos talking about the law the
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likelihood of the law and perhaps more
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importantly what you can do about it.
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Anyway one of the things that we have
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also done is we have done a one-hour
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webinar for explaining all these things
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in that you don't have to go to
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individual videos if you want to see the
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whole thing we've got a lot of nice
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comments about it so what you might want
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to do is click on the link below and
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what that will do is that will take you
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to a place where you can sign up for, and
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it's all free, for the free webinar so I
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would urge you find out about this law
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find out what you can do to protect your
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family by clicking on the link below and
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taking the time to listen to the
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one-hour webinar I think you'll be very
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glad you did. Thank you
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