Affluent savers may soon lose a big chunk of a strategy that allows them to pass on large individual retirement account balances to their children and grandchildren.
The change is part of proposed legislation called the Retirement Enhancement and Savings Act of 2016, which easily passed the Senate Finance Committee in September.
The rule change still has to pass the Senate and the House, and then be signed by the president. Nevertheless, if it becomes law, the bill would require balances in most inherited IRAs and 401(k) plans to be distributed within five years of a saver's death. One factor behind the bill's appeal is that it will generate an estimated $3.18 billion in revenue from 2017 to 2026.
Currently, heirs who inherit these accounts can take distributions over the course of their own lifetimes, meaning the balances can grow tax-deferred or even tax-free, in many cases, for decades.