Have you heard about the Setting Every Community Up For Retirement Enhancement Act of 2019, or the SECURE Act, and its proposed provisions for retirement savings plans? In May, the U.S. House of Representatives passed the SECURE Act, which aims to provide Americans with more opportunities to save for retirement.
The Act, if passed, may have significant implications for retirement savings accounts, including Stretch IRAs.
In light of the recent passage of the Act by the U.S. House of Representatives, let us share with you some information about Stretch IRAs and how they may be implicated.
First, what is a Stretch IRA?
This type of retirement savings account allows IRA account holders to pass down their retirement savings to younger beneficiaries, often grandchildren or great-grandchildren. This is an attractive option that many of our clients want to consider as they begin to craft their legacy through estate planning techniques. One of the significant benefits is that younger heirs have the ability to take required minimum distributions from the IRA based on their life expectancy, which is typically expected to be longer than that of the owner.
Second, how will the SECURE Act impact Stretch IRAs?
The SECURE Act, if passed, may impose additional limitations on Stretch IRAs. This, in turn, could result in more taxes being paid. Instead of IRA funds being “stretched” over decades, they may be spread over a significantly shorter period of time, reducing the potential tax shield by as much as decades.
To help prepare for these potential upcoming changes, there are a few important steps you can take now. The SECURE Act may eradicate Stretch IRAs for non-spouse heirs, however, it could leave an exception for a surviving spouse, a minor child, a chronically ill or disabled beneficiary, and a beneficiary who is no more than ten years younger than the owner of the IRA. By working with your experienced estate planning attorney to reevaluate who you designate as your beneficiaries, you may still take advantage of the benefits that a Stretch IRA provides.
We encourage you to build flexibility into your retirement plan. You may, for example, consider utilizing Roth IRA conversions when planning for your legacy or creating a charitable trust to leave money to a charitable organization as well as your heirs.
Preparing for the next stage of your life can be overwhelming, and the new potential changes to retirement savings accounts can be complicated. At Galbraith Law, we work closely with the Community Foundation of Collier County which connects people who care to cause that matter and grows their charitable legacies.