* IRA OWNERS BEWARE *
New “SECURE” Act Makes Your IRAs
If you have IRAs that in total (including your spouse’s)
exceed $200,000, you must read on.
What’s this New Law About?
To the surprise of many, a little publicized provision was added last minute to the Federal Appropriations (Budget) Bill and signed into law by President Trump on December 20, 2019. The provision is called the SECURE Act (“Setting Every Community Up for Retirement Enhancement”).
While it does improve some company retirement plans for employees and does defer your first taxable IRA required minimum distributions (“RMDs”) from age 70 ½ to age 72, it has a devastating income tax effect on your IRA beneficiaries’ RMDs after you’re gone.
Previously, non-spouse IRA beneficiaries could “stretchout” IRA RMDs over their lifetimes. Now, most all your IRA beneficiaries (except for minor children and disabled or chronically ill individuals), must withdraw the entire inherited IRA by the end of the 10th year following your passing.
Why Should You Care?
In all likelihood, your children or other beneficiaries younger than you no longer have the same, generous company retirement plans you may have (or had). This means that your beneficiaries will face a much greater challenge ever retiring someday.
The reduced period of RMDs, from your beneficiaries’ life expectancies (which could be 30, 40 years or more) to only 10 years, means IRA distributions will be taxed more quickly and probably in higher tax brackets (because they will be more bunched up). Instead of your inherited IRA growing tax-free until your beneficiaries’ later retirement years, it will be quickly, severely reduced by income taxes. Our preliminary calculations indicate that one-third (or more) of an inherited IRA available for their future retirement needs may be lost to taxes!
What Can You Do About It?
If you already have an IRA Inheritance Trust®, you probably will need to revise it so you can minimize the taxes on your beneficiaries’ faster, larger RMDs.
If you don’t have an IRA Inheritance Trust®, you may want to consider getting one to minimize your loved ones’ taxes.
And there are several other financial planning strategies you may want to consider to help reduce future taxes on your IRA, like conversion now to a Roth IRA.
Unfortunately, there is no “one-size fits all” solution for everyone. Your best course of action will depend on such factors as the size of your IRA, your age, your cash flow needs, and your beneficiaries’ ages and financial needs.
What’s Your Next Step?
There is no urgency to do anything immediately, unless (Lord forbid) your demise is imminent. The new law only affects your beneficiaries after you’re gone. So we have time to fully evaluate the law and determine the appropriate estate plan changes necessary (there are currently a number of items in the law which will require further examination). We are consulting with some of the nation’s leading IRA experts and intend to be ready to revise your estate planning, as necessary, by early March. Around that time, we will contact clients with larger IRAs to come in for a free attorney meeting to discuss your options.
In the interim, if you would like more information on this SECURE Act and the planning options available to minimize taxes on inherited IRAs, please attend one of our upcoming seminars.
Also, kindly forward this article to any of your relatives, friends, neighbors or co-workers who may also benefit from attending.
We look forward to assisting you with your important estate planning matters.