Monday, January 6, 2020

New distribution rules for inherited retirement accounts

You may have read reports of the SECURE Act passed in December and signed by the President. Most of the changes made in this new legislation relate to creating new employer-sponsored retirement accounts - allowing employers to combine to offer new plans to their employees.

Three of the new provisions are very important for the owners of existing IRAs and other retirement accounts:
  • The “required beginning date” on which the owner of the account must begin taking required distributions from the account is now April 1 after the year he or she reaches age 72, an extension of one to two years. 
  • The prohibition on contributing to an IRA after the owner must begin taking required distributions has now been removed. 
  • The money that is left in the account after the death of the owner or (in many cases) the owner's spouse must now be distributed to the designated non-spouse beneficiary within ten years of the death. Those distributions are taxable income. The previous preferred option of taking those funds out over that beneficiary’s life expectancy has been removed. 
For the owners of sizable retirement accounts (more than $100,000-200,000 or so per designated beneficiary) there are some trust-based options that we can discuss, particularly for those beneficiaries who would have trouble managing money for themselves. These would not avoid the tax but they would assist in the preservation and management of the funds that remain.

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