Idle Rambling On The 2019 Tax Law -- December 26, 2019

Love him or hate him, President Trump really shakes things up. I am absolutely fascinated by the overhaul of the voluntary retirement "system" -- which I track here. There are so many story lines:

• how this happened during a period of such political divisiveness
• for such a big change, it seemed to be off everyone's radar scope
• it passed with such little fanfare, it suggests "everyone" supported the change
• the tax revenue does not explain the reason for the overhaul
• imagining "who" spearheaded the change
• sorting out winners and losers
• why was only the traditional IRA targeted for major changes?

Now another piece of the puzzle, from Barron's: Roth conversions to get SECURE boost. Link here. It may be behind a paywall but one can access it while visiting one's local Starbucks.

As Barron’s previously reported, advisors should be aware of several key provisions in the Secure Act, including the elimination of the stretch IRA.

IRA beneficiaries, with certain exceptions, will have to take distributions over 10 years rather than over the course of their lifetimes. It’s this provision that could cause the Roth IRA boom.

Converting a traditional IRA to a Roth could significantly reduce an inheritor’s future tax bill. The strategy is worth considering by people with IRA savings of $1 million or more who plan to pass it on to someone other than their spouses. Beneficiaries can let the money accumulate tax-free in a Roth.

It's interesting the way that article is phrased:

As Barron’s previously reported, advisors should be aware of several key provisions in the Secure Act, including the elimination of the stretch IRA. 

That seems to be THE key provision.

The change in the age for RMDs is also of note, but I see that as a compromise to get this bill passed. 

This is the big question: if this was an "overhaul" of the voluntary retirement system, why was only the traditional IRA targeted. I may be wrong, but it seems that the Roth IRA, the 401(k), and the TSP (one of the most incredible retirement programs ever, and this for federal and military employees).

The sponsors and the lobbyists probably thought changing the traditional IRA rules was taking a big gamble and going after changes in the others would have been a bridge too far.