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This strategy may be considered a great way to help owners of IRAs (that don’t need the RMD for income to live on) to “Gift” the IRA to their adult children and pay the taxes while they are alive and not strap the adult child with all of the taxes upon inheritance. In many instances, the taxation for the adult child is higher as they may still be in their working years.
The ‘Setting Every Community Up for Retirement Enhancement’ Act was signed into law by President Trump on December 20, 2019, and is the largest Federal retirement legislation since the Pension Protection Act of 2006.
The goal of the act was to increase access to retirement planning for a broader set of Americans.
By removing IRA age limitations, eliminating barriers to entry and creating tax incentives; small business owners will have greater success in offering retirement plans to their employees.
A couple of the more notable reforms include, the elimination of the ‘Stretch’ IRA and Required Minimum Distribution, going from age 70 1/2 to 72. The removal of the ‘Stretch’ means non-spouse beneficiaries will only be able to distribute RMD (and tax benefits) for 10 years, rather than across generations, as before.
In cases of working adult beneficiaries, these 10 year distributions will be taxed as income. For some Financial Advisors, this will change the way they use inherited IRA’s as a wealth transfer vehicle.
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- https://www.forbes.com/sites/ebauer/2020/02/03/the-secure-act-requires-projected-retirement-income-disclosureswhat-does-that-mean-for-you/#7ce9902665b8
- https://insurancenewsnet.com/innarticle/secure-act-brings-sweeping-long-term-impact-on-retirement-plans#.XjQ5BnlYaUk
- https://www.forbes.com/sites/kelliclick/2020/01/27/the-secure-act-is-changing-retirement-for-manywhat-you-need-to-know/#6c3ca162330b
- https://insurancenewsnet.com/innarticle/the-secure-act-increases-the-buzz-around-annuities#.XhyADTrsZ9A
- https://www.jdsupra.com/legalnews/the-secure-act-ends-the-stretch-ira-33173/
- https://www.jdsupra.com/legalnews/secure-act-of-2019-means-more-taxes-for-60579/
- https://www.forbes.com/sites/leonlabrecque/2019/12/26/the-mom-roth–intergenerational-roth-conversion-after-the-secure-act/#6ba02f2d39fb
- https://insmax.com/wp-content/uploads/Lincoln-Financial-SecureAct-pdf.pdf