New legislation may make inheriting an IRA less lucrative.
Unless you have been living under a rock, chances are you have heard of an IRA or individual retirement account.
This is a fundamental financial tool when it comes to saving for retirement.
IRAs have been useful in leaving an inheritance to family members, as well.
With strategic planning, you could make this inheritance last for years long after you are gone.
This may be changing.
According to a recent CNBC article “Congress may gut the 'stretch IRA' that wealthy people love,” the House Ways and Means Committee of Congress passed the Secure Act.
It sounds good, but what does the Secure Act actually accomplish?
On the upside, it requires employers who provide 401k plans to include long-term part-time employees.
Through the plan, small companies would receive a $500 tax credit for starting retirement plans with automatic enrollment.
Now for the downside.
The Secure Act also includes a rule requiring non-spouse beneficiaries to drain all money from the account within 10 years of the death of the original owner.
This provision makes inheriting an IRA less desirable for younger heirs.
Why?
It makes Stretch IRAs impractical.
With a Stretch IRA under current law, a designated beneficiary may take required minimum distributions (RMDs) from the account based on his or her own life expectancy.
With the new rule law, the inherited IRA will need to be drained much more quickly.
This can create a significant tax liability for your designated beneficiaries.
There are a few exceptions to the new rule for beneficiaries who are disabled, those fewer than ten years younger than the decedent, and minor children.
If this new law upsets your current strategy, do not fear.
Fortunately, there are other options when it comes to estate planning with an IRA.
One such option is through use of a charitable remainder trust.
Do not navigate legislative changes alone.
Work with an experienced estate planning attorney to help create a plan to meet your needs while satisfying the laws of the land.
Reference: CNBC (April 11, 2019) “Congress may gut the 'stretch IRA' that wealthy people love”
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