A bill known as the SECURE Act is currently making its way through Congress and is expecting to become law with nothing more than minor changes.
Key provisions of the SECURE Act include:
- Increasing the required beginning date for required minimum distributions (RMDs) from age 70½ to 72
- Repealing the maximum age for contributions to traditional IRAs
- Adding exceptions for penalty-free withdrawals by an account owner
- Requiring certain beneficiaries to withdraw inherited account balances within 10 years of the account owner's death
Currently, when an account owner dies, non-spouse beneficiaries can “stretch” required minimum distributions (RMDs) over their individual life expectancies. Under the House version of SECURE Act, the "stretch" would be capped at 10 years, resulting in some beneficiaries receiving distributions before they are ready to receive them, subject to some exceptions for spouses and minor children (until they reach the age of majority). The Senate's version is more generous: It would allow the IRA to stretch for the beneficiary's life expectancy up to $450,000, but any amount over that limit must be withdrawn within 5 years of the account owner's death. The bottom line is: experts believe the the days of lifetime stretch IRAs are limited.
If funds in traditional (non-Roth) retirement accounts are a substantial part of your estate, now might be a good time to call us to have your estate plan reviewed. If you already have standalone retirement trust, we might want to look at switching from conduit to accumulation. If you do not have a standalone retirement trust, now might be the time to add that to your estate plan. A standalone retirement trust with accumulation provisions permits assets to remain in trust for a beneficiary even if the RMDs must be taken (and taxes paid) within the required time frame. This might be a useful alternative when planning for certain types of beneficiaries.
If you have one or more large retirement accounts and charitable inclinations, you might want to consider planning with charitable remainder trusts, in which a qualifying tax-exempt charity can receive the retirement distribution from which it will make annuity payments in one lump sum without income tax consequences.
If you yourself have inherited a large retirement account and will be forced to liquidate it within 10 years, you might want to consider creating irrevocable life insurance trusts to purchase life insurance policies for both estate tax planning and to provide asset protection for your intended beneficiaries.
Feel free to call us to discuss any of these options.