With so much market volatility, many are scrambling to plan for their uncertain future. If you are planning on leaving your IRA, ROTH IRA, or Qualified Plan to your heirs, you may want to rethink how you plan your estate.
Congress passed the SECURE Act in December 2019, in pre-Covid-19 America. The goal was to incentivize businesses to start offering retirement savings plans, including to part time workers. In addition, the bill was aimed at increasing retirement wealth by eliminating an age cap for contributions to IRAs and raising the age of mandatory withdrawal.
Now that Covid-19 has slowed the global economy, Americans are taking a closer look at the SECURE Act, and its long-term effects in a volatile market. The SECURE Act eliminated stretch IRAs, which will increase taxable revenue on inheritable retirement plans. If you were a non-spousal heir, you used to be able to take out minimum distributions from an inherited IRA over time based on your life expectancy. This would allow you to have some control over your taxable income each year, and potentially not raise your tax bracket. Our tax experts at Ray Quinney & Nebeker can help you work through these details and how they apply to you.
Note that under the SECURE Act, you must now make all withdrawals of inherited accounts within 10 years. “There are no required minimum distributions within those 10 years, but the entire balance must be distributed after the 10th year.” This means that beneficiaries are required to take out large sums of taxable income, often at times when it is least needed.
What Can You Do?
- Get a life insurance policy which can offset your tax burden after death, even if it means cashing out your IRA and Qualified Plan.
- Covert your retirement plans to ROTH over your retirement years, when your tax rate is lower.
- Withdraw portions of an inherited account each year to spread out and potentially mitigate the associated tax burden.
- Review and update your estate plan (i.e., your wills and trusts) and coordinate your estate plan with your retirement plans’ beneficiary designations.
- Contact our estate planning experts to help you navigate this complex process.
In an uncertain economy with short-term health struggles and a long-term recession pending, make sure that you plan for your estate to maximize the security of your heirs. Visit this calculator to see how the SECURE Act may affect your inheritance.
Copyright © 2020 by Mark W. Pugsley. All rights reserved.
Note: This article was written with the assistance of Lydia Rytting, who is student at the University of Utah, S.J. Quinney College of Law.