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On today’s Crash Proof Retirement Show, Phil Cannella and Joann Small discussed Roth IRAs and the myriad tax advantages these investments contain—both for retirees as well as their heirs.

However, our hosts also discussed current proposals on Capitol Hill that could permanently alter the Roth IRA landscape as early as 2015. President Barack Obama’s proposed budget suggests a number of changes to these particular retirement accounts. Here are a few of the main points covered by our hosts:

Required Minimum Distributions: Roth IRAs would cease to be exempted from Required Minimum Distribution (RMD) laws. In other words, retirees over 70 ½ years old would have to begin taking RMDs from their Roth IRAs, just as they do from traditional IRAs. This is pivotal because the lack of a RMD requirement is one of the greater advantages to converting to a Roth.

Other major Roth-related provisions include:

The End of the Stretch IRA: The president hopes to mandate a requirement to fully disperse funds from an inherited Roth—or traditional—IRA with five years of the original owner’s passing. (If the beneficiary is the spouse of the deceased, they would be exempted from this provision.) This would be known simply as the “5-year rule.” This would effectively eliminate the advantageous “stretch” IRA, which allows its owners and eventual heirs to accumulate savings tax-free over multiple generations.

What’s more, non-spouse beneficiaries would be subject to stricter tax consequences on inherited accounts, diminishing the value of IRAs for the purposes of estate planning.

Establishment of a Retirement Savings ‘Cap’: Once you’ve reached a certain level, further contributions to your retirement account would be prohibited under this provision. The precise amount will be calculated when you reach age 62 by using an equation that would allow for an annuity of $210,000. As life expectancies and inflation change, so too will this equation—but right now, that puts the cap at $3.2 million per account.

So will this new budget pass? Our guest this week was Jamie Hopkins, an Assistant professor of Taxation at The American College in Bryn Mawr. Professor Hopkins says that while it’s a challenge to get certain bills passed, a potential compromise bill would like include at least some of these provisions. More than likely, however, people with pre-existing would likely be grandfathered into the current laws—meaning exemptions from these proposed legislative changes.

“I’ve been telling everyone I know to convert money into a Roth—especially this year,” said Hopkins. “This law doesn’t seem too likely to pass in 2014, but that doesn’t mean it won’t pass by next year. The likelihood is that anyone with an existing IRA, those contributions would be grandfathered. My tip is to get that Roth IRA set up this year.”

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