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American Subcontractors Association - National (ASA)

ASA’s Opposition to the Elimination of Stretch IRAs


ASA joined the Small Business Legislative Council (SBLC) in a letter to the Senate Minority Leader Schumer regarding the SECURE Act (H.R. 1994).  The SBLC does NOT support the elimination of the stretch IRA and the increased penalties for the late filing of retirement plan forms contained in the SECURE Act because they will adversely affect the small businesses.

The SBLC is an independent, permanent coalition of forty national trade and professional associations whose goal is to maximize the advocacy and presence of small business on federal legislative and regulatory policy issues, and to disseminate information on the impact of public policy on small businesses and closely held businesses, including family owned businesses. Founded in 1976, the SBLC is the only small business association whose membership is comprised exclusively of trade and professional associations and, through its members and their members, it represents all sectors of the economy and a significant swath of the country’s small businesses. It is also one of the few associations representing small and closely-held businesses which is non-partisan and through its members represents more than 50,000 businesses across the economy. ASA has been a long-standing member of the SBLC.

Per the letter, “we urge you to amend or remove these provisions to ensure Americans can continue to save in their retirement plans without fearing that their non-spousal beneficiaries will be left with a new and significantly larger tax burden.  The hard working small business owners who did the right thing and established retirement plans for themselves and their employees will be subject to an unanticipated new tax that at least one expert believes will have a more far reaching impact on Americans than all of the recent changes made to estate taxes in the recent Tax Cuts and Jobs Act. Unfortunately, few understand the impact of the elimination of the stretch IRA which is contained in the SECURE Act but not in the Senate’s Retirement Enhancement and Savings Act (RESA) (S.2526). 

The elimination of the stretch IRA may very well have a negative impact on the long term funding of small business retirement plans. This is because once this new tax is understood, owners will tend to underestimate what they will need to save in the plan for their retirement and are likely to stop employer contributions to the plan once they have reached that amount. The elimination of the stretch IRA will hurt small business owners but it could hurt their employees even more because once the small business owners think they have saved enough in the plan, many companies will stop making employer contributions and their employees will be losing the valuable contributions made by the small business on their behalf.

Section 401 of the House-passed SECURE Act would limit the stretch period for IRAs to 10 years for the vast majority of non-spousal beneficiaries, requiring the account to be fully distributed—and the beneficiary to pay the full tax on those distributions—within that timeframe.  This will have the effect of depriving these beneficiaries (almost always children) of potentially decades’ worth of investment income and a valuable safety net. It would also greatly increase their tax burden, potentially pushing them into a higher tax bracket, during the 10-year distribution period.  Some experts have estimated that the elimination of the stretch IRA decreases the value of an IRA by about a third.  This will force employees to start taking money out of the plan sooner and small business owners shutting the plan down sooner to make sure money is left to the children in a more favorable manner.  Many of these Americans would not have saved in these retirement plans (as urged by Congress) if they had known the tax treatment on their savings would be changed so dramatically and in effect, retroactively.”

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