The IRS Wants More of Your Future Inheritance Money

Beginning in 2020, beneficiaries of an IRA, Roth IRA and other qualified plans will be limited to 10 years after the owner’s death to withdraw all of their money from their inheritance accounts. Moreover, this can result in hefty taxes. Congress believes this bill, called the Secure Act, closed a loophole that benefited wealthy individuals, and eliminated taxpayers’ ability to set up retirement accounts for their heirs to reduce tax obligations.
Prior Regulations
Under the former IRS regulations, those who inherited qualified investment accounts could stretch their required minimum distributions over their lifetime, thus significantly reducing their taxes. This provided beneficiaries with supplemental income, thus allowing them to enjoy the benefits of tax-advantaged investment gains.
Exceptions from the Secure Act
Some beneficiaries are exempt from the requirements of the Secure Act and still have the option to withdraw no more than the required minimum over their lifetime. These include surviving spouses, minors, and disabled people. Children, however, do become subject to the 10-year rule once they reach 18.
The law also does not apply to those who are 10 or fewer years younger than diseased account holders. Also, if you received an inheritance prior to the beginning of 2020, you are not bound by the Secure Act.
Options to Consider
1. You might want to change your inheritance to your spouse rather than to your children or grandchildren.
2. Continue changing your IRA to a Roth IRA. Although you will have to pay tax on money you convert from an IRA to a Roth IRA, once you do, your future earnings will be tax-free.
3. Make your qualified charitable donations from your traditional IRA. The IRS allows you to contribute up to $100,000 annually to qualified charities.
Make sure you consult with a tax consultant for tax planning. Remember, if you are a client, you are welcome to receive unlimited complimentary tax planning advice.
We welcome you to contact us if you have any questions concerning the Secure Act.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.