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Friday, March 29, 2024

Congress Just Passed Nightmare Legislation that Strips Trillions in Wealth from the Middle Class

Courtesy of Pam Martens

Broken Piggy Bank

Five days before Christmas, while the impeachment debate distracted voters, the President signed into law the so-called Secure Act – which was a sickening bi-partisan attack on the wealth-building capability of the middle class.

Making the dirty deed even more Grinch-worthy, the attack on the assets of the middle class comes after the Trump tax overhaul in 2017 gave a windfall to the super wealthy by doubling their estate tax exclusion from $11 million per couple to $22 million. Now someone has to pay for that and both Democrats and Republicans in Congress have stealthily decided it’s going to be Millennials – who are already buried under student loan debt with a meager average net worth of $8,000.

The only people that will gain security from the Secure Act are the Wall Street wealth advisors who are already looting two-thirds of the average 401(K) over a worker’s career through fees; the insurance industry that browbeat members of Congress into signing the legislation into law and got an insurance annuity payout option included; and the lawyers who will rack up millions of new billable hours from rewriting trusts that no longer make any sense as a result of this wholesale sell-out of the middle class in America.

Under the mantra of increasing 401(k) participation for workers and adding a paltry year and a half to when workers must take mandatory distributions from their sheltered retirement accounts (from age 70 ½ to age 72), the addled brains and/or corporate lapdogs in Congress just removed one of the most critically important avenues that the middle class have for accessing the benefit of tax-sheltered compounding over decades in order to maximize wealth building for those who can’t afford estate planners, tax attorneys and CPAs.

Under long-established legislation, when an IRA account owner died, he or she would typically have named their spouse as the beneficiary of the IRA. That meant that the spouse could simply roll over the decedent’s IRA and continue taking the Required Minimum Distribution (RMD) based on their own life expectancy and the new dollar amount of the account. When the final spouse died, the adult children were typically named as the heirs to the IRA. In many cases, this introduced the next generation to their first clear understanding of the magic of compound interest in a tax-sheltered vehicle – the most efficient form of wealth building that there is.

Under the Secure Act, nothing has changed when the first spouse dies. The surviving spouse retains the same benefits previously held. The sneak attack occurs when the final spouse dies and attempts to leave the children with a wealth-building vehicle for life.

Under the insidiously named Secure Act (Setting Every Community Up for Retirement Enhancement) the children who could previously inherit their parent’s IRA and take the Required Minimum Distribution based on their own age – effectively giving them the ability to compound that inherited IRA over their own lifetime on a tax-sheltered basis – will now be required to reduce the account to zero (yes, ZERO!) over a period of ten years. This former provision was previously known as the “Stretch IRA.” Now it’s become the “Shrink IRA.”


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