The Bloomberg BNA Federal Tax Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues about federal tax topics. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.
Tuesday, June 18, 2013
In an effort to offset the cost of maintaining low student loan interest rates, Congress recently considered limiting beneficiaries' ability to defer paying taxes on inherited retirement accounts.
When an IRA owner or participant in an employer-sponsored retirement plan dies before receiving a benefit, current law allows the designated beneficiary to defer taxation until his or her own retirement. This practice can delay taxation for many years if the beneficiary is much younger than the deceased.
A recent bill, S. 953, would have forced most beneficiaries to withdraw, and pay taxes on, funds held in the retirement account within 5 years. The bill provided exceptions for surviving spouses, minor children, certain disabled or chronically ill beneficiaries, and beneficiaries who are no more than 10 years younger than the decedent.
Although this bill failed to advance in the Senate, the proposal could very well return as a convenient revenue raiser. How might this change to the distribution time frame for inherited retirement accounts affect employer-sponsored plans and individual participants?
--Vanessa Walts
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