In Congress' effort to continue transportation funding, Senate Finance Chairman Max Baucus (D., Mont.) has recommended the bill include a provision limiting the tax deferral options of inherited IRAs unless the IRAs have been converted to a Roth. In simple terms, currently, inherited IRA beneficiaries are able to withdrawal funds over the beneficiary's life expectancy. Beginning in 2013, the proposed legislation would require most non-spouse inheritors of traditional IRAs to withdraw the entire amount from a traditional IRA within five years. There are a few exceptions that are detailed in a recent Forbes article, Congress May Crush Key Tool For IRA Inheritors. The Forbes article notes, "Let’s hope there’s enough of a public outcry that this legislation doesn’t pass. If it does, owners of traditional IRAs will have one more reason to convert them to Roth accounts. The mark up legislation can be viewed at this link (PDF).
Saturday links: endowment effects
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