The recently enacted SECURE Act eliminated the ability for a beneficiary to stretch an inheritance over their lifetime, if the inheritance is coming from retirement savings such as a Traditional IRA, Roth IRA, or Employer Plans such as a 401(K).
Previous to the SECURE Act, beneficiaries that inherited retirement savings could roll that into an “Inherited IRA” and take the required minimum distributions over their lifetime. Now, they must take all of the money out within 10 years of the account holder passing away. There are no required minimum distributions that have to be taken, but the account has to be empty after 10 years.
When the beneficiaries take this money out, they will have to pay taxes on any of the money that is in a pre-tax account and it will be taxed based on their ordinary income-tax rate at that time. This means, instead of stretching the distributions (and taxes) over their lifetime, they now have to take the money and pay the taxes within 10 years.
Exceptions To The Inheritance Changes in the SECURE Act...
The information above only applies to non-spouse beneficiaries. Spouses still have the same options they had with inheritances prior to the SECURE Act. The other exception to this would be minor children. The 10 year rule wouldn’t apply to them until they reach the age of majority. The age of majority varies by state. Currently in Ohio, it defaults to age 21 unless stated otherwise in your will.
The Roth IRA Becomes Even More Appealing
The SECURE Act may make the Roth IRA even more appealing, especially for estate planning purposes.
If you are wondering what a Roth IRA is, you can read this article that we wrote detailing it.
If you are doing a great job saving, and you are currently saving exclusively into pre-tax accounts, it would be worthwhile for you to talk to a Financial Planner to see if a Roth IRA would be right for you. This is because a Roth IRA could not only be beneficial for your retirement planning but also planning for if/when you pass an inheritance on to your beneficiaries.
Since Roth IRAs are funded with money that you have already paid tax on, you don’t have to pay taxes on distributions in retirement. This also means that beneficiaries will inherit and be able to use Roth IRAs tax-free as well. As discussed above, the SECURE Act will still require the Roth IRA to be drained within 10 years of the account holder passing away but the beneficiaries will not have to pay taxes on that money. This could save your beneficiaries a lot of money in taxes.
In addition to that, Roth IRAs do not have required minimum distributions. This means, you will not be forced to take money out of Roth accounts while you are in retirement, giving you more flexibility and control of your income (and taxes) in retirement.
We recognize that everyone has specific financial planning needs, and there are exceptions to some of the things mentioned, and for that reason, we recommend that you speak to a Financial Planner about your specific situation.
We have 5 Financial Planners on our team and we would be happy to discuss the details of the SECURE Act and how it may affect your retirement planning.
Schedule a meeting with one of us here.
THE SECURE ACT CHANGES THE WAY PEOPLE INHERIT MONEY
January 28, 2020
Whitaker Myers
Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.
Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.
Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.
Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
