When making estate planning decisions, it is important to keep abreast of changing laws and how they will affect one’s asset distribution. A new law, Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), went into effect at the start of 2020 and changes the way people can use their IRAs, 401(k) plans and Roth IRAs.
Florida residents may not be aware that the Stretch IRA has been eliminated by the new SECURE Act. Previously, when parents left their IRA assets to their beneficiaries, children could use them over the span of 50 years and pay taxes on them. While they could take out as much as they wanted annually, they were prevented from moving into a higher tax bracket by being allowed to make a minimum distribution every year. Additionally, retired people could actually pay the taxes on their IRAs and roll them over into ROTH IRAs, where assets could grow tax free. As a result, children who inherited the IRA would not have to pay taxes in their lifetime.
However, the SECURE act ended the stretch IRA. In most cases now, inherited assets must be withdrawn within 10 years of the original owner’s death. As a result, people will end up withdrawing more money and paying more taxes. This does not apply to a surviving spouse though.
Those who want to leave their retirement accounts for their children or other beneficiaries should plan for five or 10 years down the road. They should consider who they are going to leave it to and where they live, in order to try to anticipate the tax situation in that state.
Estate planning can be complicated and overwhelming for those engaging it, but one does not have to go through it alone. Having an experienced attorney by one’s side and explaining the ramifications of one’s decisions can ensue one is making informed decisions about how their asset will be distributed after they are no longer around to make those decisions.
