To read the first entry about the SECURE Act, click here.

With few exceptions, the SECURE Act effectively eliminates “Stretch IRA” plans.

Another change in 2020 is the elimination of longstanding provisions allowing non-spouse beneficiaries who inherit traditional IRA and retirement plan assets to spread distributions—and therefore the tax obligations associated with them—over their lifetimes. This ability to spread out taxable distributions after the death of an IRA owner or retirement plan participant, was often referred to as the “stretch IRA” rule. The new law, however, generally requires any beneficiary who is more than 10 years younger than the account owner to liquidate the account within 10 years of the account owner’s death unless the beneficiary is a spouse, a disabled or chronically ill individual, or a minor child. This shorter maximum distribution period could result in unanticipated tax bills for beneficiaries who stand to inherit high-value traditional IRAs. This is also true for IRA trust beneficiaries, which may affect estate plans that intended to use trusts to manage inherited IRA assets.

Using a testamentary charitable remainder unitrust to replace your stretch IRA may allow you to avoid the 10‐year restriction on stretching your IRA, provide for your heirs, save taxes, and leave significant charitable gifts to support your favorite ministries.

In addition to possibly reevaluating beneficiary choices, traditional IRA owners may want to revisit how IRA dollars fit into their overall estate planning strategy. For example, it may make sense to consider the possible implications of converting traditional IRA funds to Roth IRAs, which can be inherited income-tax free. Although Roth IRA conversions are taxable events, investors who spread out a series of conversions over the next several years may benefit from the lower income tax rates that are set to expire in 2026.

Changes like these can be confusing. Our team of experienced gift and estate design consultants can help reevaluate your estate plan to ensure your family, church, and favorite ministries receive the maximum support with the minimum amount of taxes. To schedule your free, no obligation consultation, call 833.672.4255 or email [email protected].

 

This information is not to be considered legal or tax advice. IRA contributions after age 70½ may negatively impact IRA gifts. Please consult a tax professional before acting on this information.