Last spring the United States House of Representatives by an over whelming majority passed the most significant changes to the IRA/401(k) laws since their original passage in the mid 1970’s. If signed into law these changes will:

  • allow part-time workers who work less than 1,000 hours a year to contribute to a 401(k) plan;
  • allow contributions to IRAs after the existing age 70.5 age limit;
  • delay the age for the start of required minimum distributions to 72;
  • allow penalty free early withdrawals from a retirement account of up to $5,000 per parent f or the birth or adoption of a child; and,
  • allow small employers who may not otherwise be able to afford the administrative costs of a 401(k) plan to band together and offer a pooled 401(k) plan; and,
  • liberalize the rules related to annuity investments for 401(k)s with the goal of creating lifetime income retirement benefits.

To offset the Federal Government’s loss of tax revenue caused by these changes, the proposed law provides, with certain exceptions, that a beneficiary of deceased person’s IRA or 401(k) can no longer stretch out distributions over the beneficiary’s own lifetime. Under the new proposed law, a beneficiary must now withdraw the entire plan balance within 10 years of the date of the original account owner’s death. The exception applies when the beneficiary is a spouse, a minor child or a disabled or terminally ill person. Unfortunately, the exception does not extend to a trust established for a person in this class unless all other beneficiaries in the trust fit are in one of these classes, which is uncommon.
Before the new law can be presented to the President for signature, the Senate must pass the bill passed by the House. To avoid debate on the Senate floor, the bill must pass unanimously. As of the last count, three US Senators were holding out on commitments to vote for passage. If the bill is not passed unanimously by the Senate there appears some risk that the bill will not make it to the Senate Floor due to competition with other legislative and political priorities. Stay tuned and we will be sure to update you. For more information about the legislation or estate planning, tax and retirement strategies and retirement planning, please contact PLDO Partner Gene M. Carlino in Rhode Island at 401-824-5100 or in our Florida office at 561-362-2030 or email

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