In this Elder Law Minute, Wes Coulson discusses the new SECURE Act and how it may affect you.
Toward the end of 2019, Congress passed and the president signed into law something called the SECURE Act, and this is the first law in a long time that makes a big difference when it comes to IRAs and other qualified retirement assets. Before the SECURE Act, people who inherited an IRA from the original owner could take the money out in annual installments over the course of their remaining statistical life expectancy. That’s what was known as a stretch IRA. The SECURE Act did away with stretch IRAs and instead requires that all money from an inherited IRA be withdrawn within 10 years following the year in which the person who originally owned it died.
What does this mean for you, if you have IRAs?
First, it means you need to get into your tax and financial advisor, perhaps your attorney, to rethink your IRA strategy. The strategy of only taking required minimum distributions may turn out to be actually the worst possible strategy, because it might mean whoever inherits those IRAs from you is going to have to take out a bunch of money in a short amount of time during their working years at a higher tax bracket.
Another thing I think that it means is that doing Roth IRA conversions is going to become a much more attractive alternative. With a Roth, basically, you take the money out of the IRA, you pay the tax on it, you take that after-tax money and that goes into the Roth IRA and that grows tax-free from then until it is withdrawn. Roth IRAs are also going to have that 10 year window after you die within which the money is going to be taken out. And whereas that’s bad in the case of traditional IRAs, with Roths it means that whoever inherits that IRA from you, because they don’t have to take it out in annual installments just by the end of 10 years, it gives them the opportunity of 10 years of tax free growth. That’s a pretty big advantage.
Again, really different thing now for IRAs, and if you own IRAs, 401ks, or other retirement assets, it’s well nigh time to take a look at your strategy and rethink it.
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Coulson Elder Law is dedicated to providing families in the St. Louis area with their Elder Law needs. Our practice areas include Asset Preservation Planning, Veterans Benefits, Medicaid Eligibility, Alzheimer’s Planning, Special Needs Planning, Estate Planning and more. We understand the financial challenges you may face as you and your loved ones grow older. At Coulson Elder Law, our clients’ well-being is our number one priority. For immediate help, call (618) 632-7000 (IL) or (314) 567-9292 (MO), or Contact Us and we will get in touch as soon as possible.