There’s almost always a reckoning when the government proffers a tax break. So it is with individual retirement accounts (IRA)s, 401(k)s and similar accounts that investors fund with pre-tax earnings.
The Setting Every Community Up for Retirement Enhancement (Secure) Act upended inherited IRAs for most non-spousal beneficiaries. The 10-year rule for withdrawing from inherited IRAs eliminated the ability to stretch inherited IRAs for these beneficiaries.
The rise in the stock market over the past several years, teamed with the passage of the SECURE Act two years ago—as well as the scheduled 50% reduction in the size of the federal estate tax exemption four years from now—has resulted in a renewed interest in estate planning for IRA and 401(k) accounts owned by married couples.
Unless you spend your winters in Aspen and your summers in the Hamptons, you probably don’t have to worry about paying federal estate taxes on an inheritance. In 2021, the federal estate tax doesn’t kick in unless an estate exceeds $11.7 million.
Inheriting an IRA from a parent has a unique set of rules you need to know, which will help you make the most of the money you inherit and avoid a tax-time surprise.
Every so often, it’s smart to methodically go through your estate planning documents and see if any tweaks are needed. Here’s a checklist to guide you through that mission.
In the pre-SECURE Act universe, there were designated beneficiaries. These beneficiaries could be individuals (sometimes called named beneficiaries), institutions, such as charities, or estates.
An applicable multi-beneficiary trust can solve some--but not all--of the challenges that the new act presents.
What may have seemed like something to take care of ‘one day,’ has turned into a basic necessity that makes it essential and necessary for you to encourage your clients to act now.
It is also important to realize that it isn’t merely ‘why’ you are updating your will, but ‘when’ you are updating that can make all the difference.
