Estate Planning Just Got a Bit More Complicated

Retirement

Estate Planning Just Got a Bit More Complicated

Posted by Infinite Wealth Advisors, LLC
8 months ago | January 13, 2020

The SECURE Act, signed into law on December 20, 2019, aims to make retirement planning a bit easier for many Americans. It accomplishes this goal by lifting a few key restrictions that previously served as obstacles for those trying to save for retirement. However, one provision of the law does make things a bit more complicated in the area of estate planning, so some of you might need to tweak your plans now.

In the event that your heirs inherit your IRA, the new law will affect what they can do with that money. Previously, a “stretch” IRA allowed beneficiaries to draw out distributions -and therefore the associated income taxes – for decades. Now the new law will require those inheriting an IRA to withdraw the money, and make the necessary tax payments, within ten years.

The idea behind this provision was to collect taxes on inherited funds, to offset the losses from other provisions contained within the SECURE Act (such as allowing IRA holders to delay required minimum distributions until age 72, or indefinitely if they’re still working). But if you planned to leave your IRA to anyone other than your spouse, this can create complications for them.

If your beneficiary is your spouse, the ten-year withdrawal rule will not apply to them. Nor does it apply to anyone who inherited an IRA before 2020.

The new rule also will not apply if you leave your IRA to someone who is disabled or chronically ill, although you should speak to an estate planning attorney about that part of the law to ensure that your beneficiary is exempt for the ten-year rule.

But for everyone else, inheriting an IRA can mean paying a bit more taxes, and enjoying the distributions for a shorter period of time. If you were planning to leave your IRA to anyone other than your spouse, this change in the law warrants a meeting with an estate planning lawyer to determine whether this individual might be negatively affected by the new law. It is possible that structuring your estate in another way could reduce that burden upon them.

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