By Rhonda Miller
Partner at Dunlap, Bennett & Ludwig with a concentration in Estate Planning, in addition to Tax and Wealth planning.

 

[05/29/2019 Vienna]  The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, a bill that would make it easier for businesses to set up retirement plans, is set to become law as it passes through House in Congress. This bill would allow more annuities in retirement plans and would raise the age requirement set for the minimum distribution to age 72 from 70 ½.

The downside? The rules of the bill change when the account holder dies. Currently, when an account holder dies their spouse can roll over their account, the required minimum distribution is recalculated, and the retirement account continues to stretch out. If the spouse also were to die, he/she can leave the accounts to their children, and once again, the required minimum distribution is recalculated, and the retirement account continues to stretch out over the lifetime of the children.

This is changes under this new bill. Unless the child is a minor, children will only be able to stretch an Individual Retirement Account (IRA) out for 10 years. This means if a child inherits $2.0M in an inherited IRA he/she will have to either take $200,000 out each year or take out a lump sum after 10 years. With this, a lot of tax will have to be paid, and the planning will then become how to lessen the tax impact of the money. In addition, with this bill children are receiving this money in their prime earning years, and if they are in a bad marriage absent a prenup the money is fair game in a divorce.

The public does not even have the final version of this bill yet, however, it is assumed that it will make it through before summer recess. The Senate version of this bill has allowed children to stretch-out $450,000. In some form or another, this bill is expected to pass, and it is going to affect children’s ability to stretch out inherited IRAs.

Posted in: Estate Planning