On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was signed into law as part of the Further Consolidated Appropriations Act of 2020. The SECURE Act promulgates the following changes to retirement plans:
With the changes to the stretch provisions for traditional IRAs, a valued strategy was essentially erased with the stroke of President Trump’s pen. With a focus on inherited IRAs and the dissolution of the stretch provision, the following are potential estate planning strategies:
Accelerate Roth conversions. Begin converting traditional IRA holdings into a Roth IRA and bequeath it outright, or name an accumulation testamentary trust.
Utilize a charitable remainder trust (CRT). Put the tax free, lump-sum distribution of an inherited IRA into an irrevocable CRT that names designated beneficiaries as income beneficiaries and a charitable organization as the remainder beneficiary.
Consider multi-beneficiary trusts. These allow designated beneficiaries to potentially benefit from inherited IRAs bequeathed to both them and an eligible designated beneficiary.
Leverage life insurance. By taking distributions and using part of those proceeds to pay life insurance premiums on permanent life insurance with a face amount that covers, at a minimum, the account size set aside for bequeathment, the IRA owner will be pleased that such an asset is being passed on to heirs without the burden of taxes.
Keep the status quo. In some situations, things might be just fine with the new rules in place since many IRA beneficiaries do not stretch their inherited funds, and for those who do stretch their IRAs, many exhaust their accounts within 10 years anyway.
Regardless of the strategy chosen, it makes sense to sit down with a financial adviser to ensure that your plan contemplates all relevant variables.
About the Author
Sharif A. Muhammad, MBA, CPA, MST, CFP®, is the managing member of Unlimited Financial Services LLC. He can be reached at email@example.com.Related Articles: