A History Of Growing Trust In Kentucky

How does the SECURE Act affect retirement account inheritance?

On Behalf of | Feb 3, 2025 | Estate planning

The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed how people inherit retirement accounts. These new rules impact estate planning, so individuals must adjust their plans to meet financial goals.

End of the stretch IRA

Before the SECURE Act, non-spouse heirs withdrew small amounts over their lifetime, allowing the money to grow tax-free for years. Now, most beneficiaries must withdraw all funds within ten years. This rule increases tax burdens, especially for those inheriting large accounts.

Who can still stretch withdrawals?

Some people still qualify for lifetime withdrawals. Surviving spouses, minor children of the account owner, disabled or chronically ill individuals, and those less than ten years younger than the original account holder fall into this category. However, minor children must withdraw all funds within ten years after reaching adulthood.

Higher tax bills for heirs

The 10-year rule requires heirs to plan withdrawals carefully. Taking all the money at once can push them into a higher tax bracket. Spreading withdrawals over multiple years helps lower taxes while allowing the account to continue growing tax-free.

Trusts need updates

Estate plans often use trusts to manage inherited retirement accounts. The SECURE Act changed how these trusts function, which can accelerate withdrawals and increase tax liabilities. Updating estate plans ensures that trusts align with the new regulations.

Ways to reduce taxes

Individuals can use different strategies to reduce taxes on inherited retirement accounts. Converting traditional IRAs to Roth IRAs allows tax-free withdrawals. Setting up charitable remainder trusts provides tax benefits while supporting a charity. Spouses can roll inherited IRAs into their own accounts to maintain tax advantages.

Estate plans must comply with the SECURE Act’s rules to maximize benefits for heirs. Reviewing beneficiary designations, trust structures, and tax strategies prevents unexpected tax burdens. Planning ahead ensures a smooth transfer of retirement savings to beneficiaries.

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