Financial Briefs

Say goodbye to the stretch IRA! That's the message from Congress, where a pending bill with bipartisan support would deep-six this tax-advantaged practice. Stretch IRAs have been a boon to non-spouse beneficiaries who inherit a retirement account because they can extend the period of tax-free growth on an inherited IRA over their expected lifetime.

An heir can expect to live to 95, according to actuarial tables. That means a 40-year-old female heir can avoid taking the money all at once in a lump sum — and won't have to pay the IRS a big chunk of it. Instead, you can withdraw just 1/55th of the IRA amount annually, which obviously is less money than the whole of it, but also has less of a tax bite. Meanwhile, by extending the payout period, the account can grow in value over the decades, giving you more money than the sum you inherited.

Under the House bill, a beneficiary must deplete an inherited IRA within 10 years of the owner's death. (Inheriting spouses get the money tax-free and with no RMD.) While the Senate proposal permits a lifetime stretch of the deferral on the first $450,000 of an inherited IRA, the balance is required to be withdrawn in five years. The appeal to lawmakers of squelching the stretch IRA: it would raise $15.7 billion in Government revenue over the decade through 2029.