Tax Minute
INHERITED IRA PLANNING
There have always been very specific rules for distributions on an inherited IRA and it is important that people that hold IRAs are aware of them as there were dramatic changes as a result of the Setting Every Community Up for Retirement Enhancement or SECURE act that passed in December 2019. For pre-tax retirement accounts inherited after 2019, the SECURE act eliminated the "stretch provision" for any non-spouse beneficiary of the account. This provision allowed people who inherited a pre-tax retirement account to withdraw the money in the account over their lifetime. The SECURE act also eliminates the yearly required minimum distribution for non-spouse beneficiaries, but requires all of the inherited money be withdrawn within 10 years of inheritance. In addition to losing the tax deferred income from the IRA, this can result in a gigantic tax bill. The listeners to this tax minute who have large balances in their pre-tax retirement accounts that they planned to leave to their children need to relook at this strategy. It may make sense to start withdrawing this money of a yearly basis or doing a yearly ROTH conversion. While this will result in a current tax bill for you, it may help avoid a much larger tax bill for your heirs in the future.