The SECURE Act, which will become effective January 1, 2020, could more appropriately be called the Extreme Death-Tax for IRA and Retirement Plan Owners Act. IRA and retirement plan owners should take action to protect their financial legacy, preferably before year-end.
The ticking time bomb in the SECURE Act is an important provision which greatly modifies the required minimum distribution rules for Inherited IRAs and retirement accounts. Subject to some exceptions, an IRA or retirement plan that you inherit will have to be distributed and taxed within 10 years of the original owner’s death - effectively cementing “the death of the stretch IRA.
Non-spousal heirs who are not more than 10 years younger than the original IRA owner are also exceptions to the provision in the SECURE Act. This would most likely apply if you were to leave an IRA to a sibling or an unmarried partner. One provision in the SECURE Act that is very good for almost every IRA and retirement plan owner is the section that advances the RMD age to 72 instead of age 70½. For many IRA owners, one of the best defenses against the death of the Stretch IRA will be to do a series of Roth IRA conversions, preferably during the years after they stop working but before they are required to take minimum distributions from their own retirement plans.
Thoughtful estate planning is critical. Reviewing and possibly updating your entire estate plan, including wills, trusts, and IRA beneficiary designations is a good idea for many IRA and retirement plan owners. This is particularly true if you have established trusts for any beneficiary or even a contingent beneficiary of your IRA or retirement plan. The use of disclaimers may offer flexibility to many estate plans.
One of my favorite topics to discuss with clients is the benefit of taking their families on an annual vacation. My very firston Forbes.com was about the benefits of taking your family on an annual vacation. If you can afford it, I recommend you do it every year. My family does. My 24-year-old daughter feels like she is part of a clan because she spends four days annually with her cousins and her 95-year-old grandfather, who pays for these gatherings every year.
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