Secure Act Changes May Make Inherited IRA’s to Your Kids a Bad Idea

If you’re planning to leave an inheritance to your children, there’s a new rule that will probably cause your kids to pay more taxes if you pass on your retirement plan.

Today, we’re discussing how the Secure Act, passed in 2019, affects your retirement plans (401k, Inherited IRA, Stretch IRA, etc.) and front-loads taxes to kids to inherit these plans.

If you want to know what the Secure Act is, how it applies to you, and what you can do about it … tune in now!

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The Secure Act, signed into law in December 2019, has made some major changes to inherited IRA regulations. The new law has some serious implications for those who are planning to leave IRA assets to their children. Here’s what you need to know about the Secure Act and why it may make leaving IRA assets to your kids a bad idea.

The biggest change brought about by the Secure Act is that it requires non-spouse beneficiaries to withdraw all of the assets from an inherited IRA within 10 years of the original owner’s death. This means that any money left in the account after 10 years will be subject to taxes and penalties.

This new rule applies to all inherited IRAs, regardless of when they were opened. This means that if you had planned to leave your IRA assets to your children, they will now have to withdraw the entire amount within 10 years. This could be a problem if the children are not in a position to handle such a large sum of money.

In addition, the Secure Act has eliminated the “stretch IRA” option. Under the stretch IRA, non-spouse beneficiaries could “stretch out” the withdrawals from an inherited IRA over their own life expectancy. This allowed the money to remain in the account and grow tax-deferred for a longer period of time.

The elimination of the stretch IRA option also has implications for those who are planning to leave IRA assets to their children. Without the ability to stretch out the withdrawals, the money must be withdrawn within 10 years. This could result in a large tax bill for the children if they are not in a position to handle it.

Overall, the Secure Act has made some major changes to inherited IRA regulations. These changes may make leaving IRA assets to your children a bad idea. The 10-year withdrawal requirement could result in a large tax bill for your children, and the elimination of the stretch IRA option means that the money must be withdrawn within 10 years. If you are planning to leave IRA assets to your children, you should consider other options that may be more beneficial for them.