On Dec. 20, 2019, the SECURE (Setting Every Community Up for Retirement Enhancement) Act was passed into law. Two key provisions of the SECURE Act that you should note include:

1. Delays the age for required minimum distributions (RMDs) from 70 ½ to 72.

2. Eliminates the lifetime “stretch” IRA option requiring non-spouse beneficiaries of IRAs to deplete the inherited balance within 10 years of the decedent’s death.  Prior to the Act, individual beneficiaries were entitled to stretch out the withdrawal in accordance with their life expectancy to minimize the impact of the taxes.  Now, beneficiaries are required to withdraw and pay taxes on their entire inherited retirement account within 10 years of the original owner’s death.

Planning Opportunities to Consider

Roth Conversions: With tax rates at historic lows and uncertainly surrounding their future, it could be a good year to coordinate with your CPA to potentially accelerate Roth conversions, so that beneficiaries may avoid being taxed rapidly on distributions.  This is an especially applicable strategy if the beneficiaries are in a higher tax bracket than the account owner.

Purchasing Life Insurance and/or Long-Term Care (LTC) Insurance Utilizing Retirement Account Funds: Individuals who would like to maximize wealth transfer and/or protect their assets for loved ones may want to explore whether taking a withdrawal from their retirement account to pay premiums on a Life or LTC Insurance policy is more advantageous than simply leaving the retirement account to beneficiaries.  Depending on the insurability of the individual, LTC can protect from asset spend-down and alleviate the burden of care if care is ever needed.  Life Insurance death benefits may exceed the amount a beneficiary would receive from an IRA.  Better yet, Life Insurance death benefits are tax-free income.

Estate Planning: Estate account owners may choose to revise their estate plan to take a more comprehensive “asset-by-asset” approach, rather than continuing to split assets by percentage to their beneficiaries.  The intent is to take into consideration the tax bracket that beneficiaries are in – the lower tax bracket beneficiaries are not penalized with taxes as is a beneficiary in a higher tax bracket.

For more information, please contact Fahmy & Associates today at 703-760-4630.

— Ken Fahmy