For Mark Roberts’ Use: Aiming to make retirement planning more accessible to many Americans, Congress passed the SECURE Act which was signed into law in December. The law lifts a few key restrictions that once created unnecessary obstacles for many as they planned for retirement. However, one part of the law might actually complicate your life, so we wanted to notify you of the change.
Those who wish to pass on their IRA accounts (or who might inherit one someday) should pay attention to a new provision within the SECURE Act. Whereas the laws regarding IRAs once allowed beneficiaries to draw out distributions for decades, and therefore potentially save themselves some income taxes, the new law requires beneficiaries to withdraw all funds from an inherited IRA within ten years. And, of course, that means paying taxes due on those withdrawals as well.
This requirement ensures that taxes due on IRA withdrawals will be paid in a reasonable time frame, and offsets some of the tax losses from other provisions of the new law (such as allowing IRA holders to delay withdrawals until age 72). But if you plan to bequeath your IRA to a child or someone else, you should consider the ten-year rule and the effect it might have upon their income taxes.
Note that this rule only applies to beneficiaries other than your spouse. If your spouse inherits your IRA, the ten-year withdrawal rule will not apply. This rule affects inherited IRAs starting in 2020 and going forward; those inherited prior to this year are not impacted by the new rule.
In the event that you leave your IRA to someone who is disabled or chronically ill, the rule might not apply to that person, either, thanks to certain exceptions.
Consult with an estate planning attorney to determine whether this new rule will impact you or your beneficiaries, and to decide upon the best way to structure your estate.