How Inherited IRAs Work Under the SECURE Act
2020 ushered in the new SECURE ActThe Setting Every Community Up for Retirement Enhancement Act of 2019, known as the SECURE Act, became law on December 20, 2019. The Act impacts retirement savings rules and taxes for workers and retirees. Read More and with it came changes to inherited IRAs, which are also known as beneficiary IRAs. An inherited IRA is what’s left of your retirement account after your death. (It’s important to note that the rules for spousal rollovers haven’t changed.) Before the SECURE ActThe Setting Every Community Up for Retirement Enhancement Act of 2019, known as the SECURE Act, became law on December 20, 2019. The Act impacts retirement savings rules and taxes for workers and retirees. Read More took effect, children who were inheriting the IRA could take a stretch of small annual payments over the course of their lifetimes, which was a great way of reducing taxes. It also protected the IRA from things like debt, divorce, and other common issues. A lot has changed with the 2020 SECURE ActThe Setting Every Community Up for Retirement Enhancement Act of 2019, known as the SECURE Act, became law on December 20, 2019. The Act impacts retirement savings rules and taxes for workers and retirees. Read More, though.
Beneficiaries are required to empty the inherited IRA within 10 years of the parent’s passing. That could be a problem if a large amount is being withdrawn. The funds will come out at a greater frequency and volume than they would have under the old rules. That means the assets coming out of the inherited IRA are more susceptible to debt, divorce, disability, or other factors.
Those with larger IRAs can prevent this by amending their estate plan to allow for the revocable trust to accumulate the distributions instead of sending them on directly to the beneficiary. This will help protect what’s left of your assets once you’ve passed, despite the changes brought on by the SECURE ActThe Setting Every Community Up for Retirement Enhancement Act of 2019, known as the SECURE Act, became law on December 20, 2019. The Act impacts retirement savings rules and taxes for workers and retirees. Read More.
Take a look at our SECURE Act Planning Grid as a starting point to determine your next steps. If you want to talk about your specific situation, schedule an appointment with our paralegal to discuss.
Learn more about how the SECURE Act has affected estate planning in Massachusetts or what the SECURE Act means for your retirement accounts.
