The New SECURE Act and Its Effect on The Inherited IRA and Stretch IRA
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- Опубліковано 23 сер 2024
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Until January 1, 2020, when an IRA owner died naming a non-spouse beneficiary, that beneficiary could take taxable distributions over the beneficiary's life expectancy.
The Secure Act (Setting Every Community Up for Retirement Enhancement Act of 2019), made major changes to the distribution rule that affect Inherited IRAs.
The new rules require a full taxable payout from the IRA within 10 years after the death of the IRA owner.
There are a at least a couple of significant consequences that result from the SECURE Act:
(1) Generally, children inherit IRAs in their 50's. Now, since these beneficiaries must pay tax on the entire amount of the Inherited IRA within 10 years, they will be paying tax on the Inherited IRA at higher rates since children will take these distributions in their high income-earning years.
(2) Many IRA owners have attempted to carefully take advantage of legal strategies and named a trust as the beneficiary of their IRA. The "see-through trust" often requires the trustee to distribute the required minimum distribution (RMD) to the child or grandchild of the previous IRA owner. Now, RMD has a different definition and there will be only one RMD for the beneficiary of an Inherited IRA - 10 years after the death of the original IRA owner.
Bottom line - check your traditional IRA beneficiary designations. If you named a trust as a beneficiary of your IRA, you should re-visit the terms of that trust in light of these new distribution rules, and, if appropriate, make changes.
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Paul Rabalais
Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450
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The secure act worked for me. I inherited an IRA in 2020 while working and in the highest tax bracket. With RMD penalties forgiven from 2020 to 2024, I have benefited compared to where I would be with the stretch to this point. Now I am retired in low tax bracket and have 6 years to drain the account before SS kicks in.
Great video! I have been wanting to transfer an Inherited IRA (cash) from a brokerage account to a Vanguard mutual fund. I spent 2 hours on phone yesterday with Vanguard opening a new "inherited IRA" account. The transfer request was sent by Vanguard to my brokerage account yesterday and which was immediately rejected because the decedent's name was not on the transfer request and the title did not match name on brokerage account (which includes decedent's name). In the last 24 hours I have spoken with several "reps" from Vanguard who insisted the transfer request was correctly titled. We had a 3-way call this morning with my brokerage account and Vanguard rep who explained once again that the decedent's name MUST be included on the transfer request and the reason(s) why. Yes we both had to give Vanguard rep tutorial on correctly titling of inherited IRA accounts. After speaking with 5 reps at Vanguard, 2 of which indicated they were familiar with the SECURE and/or CARES act regarding annual RMD distributions, I decided to cancel transfer and shut down my Vanguard account. Vanguard NEVER requested the date of death of the decedent which would alert them that the SECURE and/or CARES act does NOT apply to my funds since the date of death of decedent was BEFORE 12/2019. I was uncomfortable having inherited IRA funds with Vanguard as they would calculate my annual RMD incorrectly and deplete the account within 5 years due to the SECURE act which is exactly what I don't want to happen. I wanted the funds to GROW! Vanguard really needs to train their reps the correct way to open Inherited fund accounts and set up the correct annual RMD calculation which includes the date of death of the decedent. Big waste of time!
This really screws up my retirement plans. I will be forced to take it all out and pay taxes on it plus higher taxes on my other income because I will be in a higher tax bracket without actually "making" more money. I was counting on this for my retirement in 15 years but it won't be there and I don't have any other retirement accounts other than taxable accounts. This completely blows. Short notice and no "grandfathering" of existing IRAs. I could understand the rule applying to new IRAs starting in a few years to give people the opportunity to plan their futures. But this is terrible.
There IS grandfathering before first of jan 2020. But im 38 and my brother is 35 when this comes omg it ruined my plans, my mum's plans, etc. They can't get Healthcare or college assistance because Trump is as ruthlessly ignorant as all the other politicians 😤
Best of luck, wish I knew who was supposed to benefit....
You may know this but you wont pay higher taxes on your other income. That income wont be in a higher tax bracket than it otherwise would be. It's only the income above a given threshold that gets the higher rate, not all your income. For instance the first $9,950 of your income isn't taxed at all. The next $9,951 to $40,525 is taxed at 12%. If you made $9,000 this year, you wouldn't pay any income tax. If you made $20,000 only $10,050 of your income would be taxed at 12% not the first $9,950.
I’d like you to discuss the ramifications of the SECURE Act as far as ROTH IRAs go.
Good question. How will taxes under the SECURE Act treat inherited F.B.O. ROTHs?
IRS Grinch enacts huge changes which accelerate realization/recognition
Thank you for this information - and thank you for being blunt!
Good info here as always. Distribution not exactly evenly divisible over life expectancy (i.e. 1/40th each over 40 years). If bene is a person, need to follow applicable life expectancy table by IRS and reduce by 1 year each year, which by itself accelerates the distribution vs. normal age 70.5 RMD (now 72 under SECURE). Also, if decedent is over 70.5 and has taken current RMD by time of death, benes need to take 1st distribution by 12/31 the year after the decedent passes. If the decedent has not taken their RMD in year of death, benes own distribution for the year of death. Could be a bit of a tax whammy. See IRS Pub 590-B for more info.
Thanks for your comment and your contribution DS. 😃
I wonder how many people are just going to quit their jobs now that they will be forced to take "earned income" from their IRAs. At least go part-time. Taking the IRA payments when you are old and retired means you will be in a lower tax bracket and won't lose as much to taxes. This is really going to mess some people's retirement plans up.
Just take the money and immediately throw it into your own retirement account. Unless you're maxing out your 401(k) and IRA it's not an issue. Basically just pass the money through.
Knowing I'll be getting something in future, I'm adding more to my Roth and will add heavily into 401k once I'm required to take distributions from inherited IRAs as it will up my income. Lowering my income as funding pre tax 401k. This video really helped me think about future retirement planning for me and my spouse...I'm needing to explore all ideas for named beneficiaries including IRAs like our trust for our retirement.
How about if a Trust is named beneficiary of the the inherited IRA and the Successor Trustee decides to close out the IRA and give it the Settlors main beneficiary, only child?
Thanks so much for this informative video!
And thanks for the comment CRB! 😀
Thank you again much needed info. Now I know what to tell my son.
My initial sense is it is less important to contribute to the IRA. Max out the Roth if one qualifies and rollover IRA funds to Roth when possible. So the IRS wins and gets their taxes on the Roth conversation.
Now we have to redo the conduit trust and turn it into a boilerplate revocable trust. Need to think through whether naming the trust or sub trust as the IRA beneficiary has any utility at all now.
I am confused. Why didn’t the parents take the money out of IRA when they are old and pay tax at a lower rate, then put the money in a trust?
Which is better for your personal home a Land Trust or a Living Trust?
For all current traditional IRAs the government is your partner. As the IRA portfolio grows, so will the government's share when the Required Minimum Distribution eventually comes due. I would think the Treasury might want to keep the money in the traditional IRA and they would raise more money over the longer time period the money remains in the IRA.
wouldn't it be better to spend down your IRA first before you spend down your investments?
What a tax nightmare. Yikes
Thanks Paul.
Any trick up your sleeve? Mom died, Ira was dads. We didn’t have enough time between my parents passing to change/ add a beneficiary to the Ira. So there wasn’t a beneficiary noted after dad passed in 2019. My brother in-law is handling the finances and says we need to send 25,000 as inheritAted tax on 75,000. That makes me crazy to see that much of dads money go to taxes??? Any thoughts. Our family is getting along well through this process my brother in law is an account but knows he doesn’t know estate laws. Is there something we might be missing before we make this payment. Soooo frustrating.
I am sorry for your loss…….
Love peace of mind...what about conduit trust?? My dad is alive.
I just received a notice that I am the beneficiary of my son's Sep-IRA. I am 74 years old. The company where the Sep IRA is held is telling me that I must open an IRA with their firm. I would prefer to have the IRA at the office where my own IRA and Sep Ira are held. They can't disclose the amount until I open an IRA with them. Does this sound correct?
Depending on the amount it makes sense to me to just cash out and pay the tax.
When my father died his IRA continued to be in his name as part of the revocable trust. Does that sound correct ?
Odd, I was told the RMD amount I have to take on my inherited IRA's were based on the age of the deceased ????
LIX 59 - I think that is true if the deceased person has already started taking withdrawals from his/her IRA. If he/she hasn't started their IRA withdrawals, then it WAS based on the beneficiary's age for the RMD calculation.
@@travelguy1564 That was exactly what took place for me in my parents situation, Thanks
This does nothing to "Secure" my retirement. It guarantees I won't have an IRA by the time I need it.
It "secures" more money for the .gov
Four generations of family earnings and sacrifice so "everyone" has retirement access? This is even more destabilizing than we can imagine...
My brother passes away in May 2019. I am still in probate court as the administrator of his estate. How do I take taxable distributions?
This is ridiculous change. We need easier and clearer rules that help retirees not crap like this. Already made adjustments in my Trust.
Great video interpreting IRS regulation into plain English. Please stay on top of the Secure Act and IRA (BENE) or (Inherited). I am confused as there could be more clarification answering the question "Can you select the 10 year distribution if the death occurred in 2020? Are there any limitations?
Try cash entire Ira within one yr of death. Lots of tax
I have a mentally disabled brother who is in a trust with me where we have a Bank Trust as sole trustee and executor. Can my brother get the stretch distribution under his special needs trust ? He would still fall under the % allocation (like 50%). He also benefits because he earns $0 bc he never had a job.
35% taxes in sale of property out of trust. CRT and family trust amended constantly.Complicated..Re do..Mom dad
Great video.
What if you inherited the IRA before 1/1/2020?
Old rules Keep Cruising 😎
13 minutes for 2 minute explanation, anyway no Roth even one time
What about second-generation non-spouse beneficiaries? Elderly Brother inherits large trad IRA from elderly brother. Inheriting elderly brother dies before the ten-year clock expires and may not have aggressively distributed funds from IRA. Inheriting son only has a balance of the original ten years to distribute the rest of the inherited IRA. Inheriting brother is in a low, retiree tax bracket. 2nd beneficiary, son/nephew is in a high tax bracket. Nephew gets whacked by taxes.
Brother, brother, and nephew need to synchronize up before the first brother passes. The first brother should shift the beneficiary share from brother to nephew. gradually. Without knowing one's own final date, I expect that he would use life expectancy. Nephew's share corresponds to mortality probability of inheriting brother. Fifty percent mortality at X date means 50% to nephew and so on.
While you want to take care of family, it's not wise to end up with a huge account and no time for the nephew to distribute it. With progressive tax rates and surcharges, substantial amounts of the money end up with the IRS. Better planning can minimize that loss. Even if the nephew had a full ten years, the IRS would get a lot. Still, it should not get a lot plus 1 dollar.
This new law really teed me off!!!
You described my dilemma perfectly. I’m exactly 50 and basically (to put it bluntly) I’m fucked! Thank you for the video though. Great info nonetheless.
Is this part of Trump's "tax cuts" for the middle class?
can i take distributions before the 10 year period
Jewlizardjane from what he said in his video you have up to 10 years from the death date of the person you inherited the Roth ira from to withdrawl. If you take it in a lump sum you will most likely pay more in tax as opposed to taking it slowly or eventually over that 10 year period. But it all has to be withdrawn by the 10 year mark. So yes you can take the distribution before the 10 year mark and are required too.
@@wetwilly420 thanks bud
Does this 10 year rule apply for inherited 401ks when account holder died after Jan. 2020
Might be important to advertise that the Secure Act’s anti-taxpayer RMD change will not affect accounts inherited by an eligible designated beneficiary. An eligible designated beneficiary is: (1) the surviving spouse of the deceased account owner, (2) a minor child of the deceased account owner, (3) a beneficiary who is no more than 10 years younger than the deceased account owner, or (4) a chronically-ill individual (as defined). So spouses, minor children (until age of majority), beneficiaries within 10 yrs of age of the deceased, and ill are not subject to the 10yr distribution mandate.
Good point. The 10 year rule will kick in at the time the beneficiary reaches age 18 tho
He did in another video.
I am trying to figure out if this screws up special needs trust planning! Freaking out!!!!
6:03 Here is the meat of his point and the big issue you need to consider. You're welcome.
Too much repetition in the first 2/3 of this presentation. Not enough (actually none) "what to do" in the last 1/3. I suppose that's bvecause he wants you as a paying client. Nobody should be surprised by this development. It's just your duly elected representatives in the House and Senate increasing your taxes without saying they have. Ger used to it. It ain't gonna change.
One thing that could be done to minimize the "hit" for the beneficiaries is start distributing the IRA as yearly untaxed gifts which can currently be any amount you choose (if it's under the current annual max. of about $15K you don't have to tell the IRS about it). If it is above 15K you have to fill out a form and send it to the IRS listing the amount and name of the recipient - but it is still a tax free gift and it doesn't have to go to your children. It can be to anyone you choose as a beneficiary (recipient). Be careful of state laws that may be at odds with Congress about taxability of gifts, however.
Agreed. I think I’m totally confused now.
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This is terrible explanation! Your rambling too much!
Please stop dancing around. Get to the point!!! I could not watch this video for over 3 min.