Changes to IRA rules…(read more)

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The Secure Act 2019 has brought about significant changes in the way Inherited IRA accounts are handled. The Act, officially known as the Setting Every Community Up for Retirement Enhancement Act of 2019, was signed into law on December 20, 2019. It was introduced to encourage American citizens to save for their retirement and to make the process more streamlined.

Inherited IRA accounts are commonly used to pass on retirement savings from a deceased account holder to their beneficiaries. Prior to the Secure Act 2019, beneficiaries of an Inherited IRA account could withdraw funds from the account over the course of their lifetime. However, under the new Act, the rules have changed, and beneficiaries must withdraw the funds within ten years of the account holder’s death. This is a significant change from the previous rules which allowed for distributions to last over the course of the beneficiary’s lifetime.

The Secure Act 2019 also changed the way that beneficiaries of Inherited IRA accounts are taxed. Under the new legislation, beneficiaries must pay taxes on the full amount of the account within ten years of the account holder’s death. This can lead to significant tax consequences for beneficiaries who receive large account balances. It’s important for beneficiaries to consult with financial advisers to understand the tax implications of receiving an Inherited IRA account.

Another significant change brought about by the Secure Act 2019 is the elimination of the stretch IRA. The stretch IRA was a powerful tax planning tool that allowed beneficiaries to distribute the funds of their Inherited IRA account over their lifetime. Under the new rules, the stretch IRA is eliminated, and all Inherited IRA accounts must be distributed within the ten-year period.

While the new rules bring some significant changes for beneficiaries of Inherited IRA accounts, there are some exceptions. Certain beneficiaries are exempted from the ten-year withdrawal rule, including spouses, disabled individuals, chronically ill individuals, and individuals who are less than ten years younger than the account holder.

Overall, the Secure Act 2019 serves to promote retirement savings and to make the distribution process more streamlined. However, beneficiaries of Inherited IRA accounts should consult with financial advisers to fully understand the new rules and how they may impact their own financial situation.