I thought today would be a good day to talk about something that can actually help you – something related to estate planning and all that fun stuff.

And, we’re NOT going to talk about the coronavirus (this week – maybe next week – cause there’s a BUNCH of interesting things to talk about).

Before all of this coronavirus stuff went down, the feds passed some new legislation related to IRA accounts that is very closely related to estate planning. The new legislation is called the SECURE Act.

Here’s the short version of what they were trying to accomplish and what it means for you (if anything).

First, before the SECURE Act was passed there was this amazing rule related to IRA accounts. You were allowed to pass down your retirement accounts (when I say IRA I’m referring to all similar retirement accounts) but there was a special rule associated with these accounts.

Just like when you withdraw funds from a regular old retirement account, when ANYONE withdraws funds, they have to pay income tax on those withdrawn funds (because they went in without paying any income tax on the funds that were deposited).

What the old rules allowed someone that inherited an IRA to do was “stretch” that IRA out on their own life span.

So, for example, if you inherited an IRA when you were 40, you’d likely be able to stretch that out until you were 80, taking 1/40th in a required minimum distribution in year one, 2/40ths in year two, etc.

This allowed the funds in that account to grow SIGNIFICANTLY over the lifetime of the beneficiary.

And, to the dismay of the government, it meant they had to wait A LONG TIME to get paid on those withdraws.

To resolve that problem, they did what they normally do: they changed the rules.

That’s where the SECURE Act comes in.

Here’s what the act says now (basically):

1. Spouses who inherit IRAs can still stretch them out (and there are a couple of other exceptions that won’t apply to most people).

2. Everyone else has 10 years to do whatever they want with those inherited IRA funds, but THEY MUST BE WITHDRAWN within 10 years.

That’s a big change, particularly if you were strategically planning on handing down your IRA to act as a retirement account for your children.

AND, it means there is a chance more of your IRA will be lost to Uncle Sam than it might have been otherwise (those IRA distributions COULD put the beneficiary into a higher tax bracket than they would have otherwise have been in, making the tax rate higher, making Uncle Sam’s take higher).

IF you have a large IRA (over $1M) and you are interested in some strategies for dealing with this, let me know.

Have a great week!

Cheers,

Christopher Small
CMS Law Firm LLC

PS – of course we’re here if you need estate planning or probate help. Click here to talk estate planning. Click here to talk probate.