IRA Planning After The SECURE Act

If you have IRAs (including your spouse's) that total over $200,000 (or employer retirement plans over that amount which you'll rollover to an IRA soon...

Your IRA Planning May Now Be WRONG!

And may cost your loved ones, who inherit your IRAs, Tens or Hundreds of Thousands of Dollars in New Taxes!
Life Savings Benefit Your Family With An IRA Inheritance

It's hard to believe, but one small, obsure, little-known provision in the Federal Appropriations (Budget) Bill, signed into law on December 20, 2019, has now completely changed the tax and estate planning for your IRAs.

For example, you probably are currently utilizing (or plan to use) one or more of these IRA strategies:

  • Deferring your taxable required minimum distributions ("RMDs") until you reach age 70 and a half
  • After age 70 and a half, only taking the RMDs, nothing more
  • Naming your children or other loved ones as beneficiaries (after your spouse)
  • Or naming your Living Trust or IRA Inheritance Trust as beneficiaries

Each and everyone of these strategies may now cause your children or other loved ones to lose up to a third or more of your inherited IRAs to income taxes! And keep in mind that they may need your IRAs to ever retire someday, because their employers no longer have the same, generous retirement plans you enjoyed (and you rolled or will roll over into IRAs).

Under the old "stretchout" rules, before the SECURE Act, a $200,000 IRA could have been worth to your beneficiaries over $750,000. Unfortunately, this old planning may now be irrelevant or, worse yet, WRONG!

The new IRA rules apply to inherited IRAs where the owner dies after 2019. There will be much faster RMDs for your heirs resulting in more taxes, more quickly and less for your beneficiaries to live on during their retirement.

Your beneficiaries can't stretchout RMDs over their own life expectancies and instead, must take out the entire IRA within just 10 years! There are a few exceptions (each with complicated requirements): Surviving Spouse, Minor Child until age of majority, "Disabled", "Chronically ill" and someone not more than 10 years younger than you.

For most beneficiaries however, a quicker payout means faster taxes, probably in higher brackets and less tax-free compounding.

How much do your beneficiaries stand to lose due to the 10-year rule?

  • Up to 45% to 55% of the total future value of the inherited IRA
  • In the prior example of a $200,000 IRA worth eventually to your beneficiary $750,000 to $1 million...approximately $375,000 to $500,000 or more lost!

The goal of proper planning is to recoup some or all of this. So the question is:

How Can You Now Preserve Your Inherited IRAs for Your Loved Ones?

The 2 Major Objectives:

  • Tax Reduction (income taxes, federal and state)
  • Predator Protection (from beneficiaries' financial immaturity and poor spending habits, spouses/divorces, creditors, lawsuits, loss of government benefits)

Naming individuals as beneficiaries is one option and probably makes sense if the total of your IRAs (both husband and wife) is less than $250,000 or there are so many beneficiaries, that each beneficiary's share is less than $150,000 and you have no Predator Protection concerns (but BEWARE of what may happen in the future!)

Otherwise, naming an "IRA Inheritance Trust" as beneficiary may be a better choice. Our office has been using the time-tested and proven IRA Inheritance Trust since 2005. It may achieve both Tax Reduction and Predator Protection. We have updated it with new, key provisions that enables the beneficiary to take advantage of the lowest tax bracket while also preserving Predator Protection.

Where Do We Go From Here?

We've given you simplified, generic information only. Your planning must be customized to you and your beneficiaries as this is NOT "One-Size-Fits-All" Planning. There are additional, sophisticated planning options that are complex and can't be fully discussed here. We may employ a combination of the options. So ACT NOW and schedule a complimentary planning session with our office. Call (818) 292-8160 or shoot us an email with the "Contact Us" box below.