Episode 62: SECURE Act Changes – Part 2: Inherited IRAs

Today’s Prep:

What are the rules now when you inherit an IRA? How has the SECURE Act changed things, and what was a stretch IRA? It’s the second installment of our series on the SECURE Act and what it means for your retirement.

(Click the featured times below to jump forward in the episode)

Equipping Points:

The SECURE Act has brought about a lot of changes to the rules surrounding IRAs and 401(k)s. Last week, we went over the six key changes in the SECURE Act in the first part in this series. This episode of Cover Your Assets KC will focus in entirely on inherited IRAs and what these look like with the SECURE Act.

On December 31, 2019 or before, if you inherited an IRA from someone then you had a lot of options as to what you could do with that account. You could take the money all at once, or convert it into an inherited IRA account. Now, starting in 2020, unless you are in a list of five designated beneficiaries, you are no longer about to stretch out that IRA over your lifetime. Instead, you’ll have to clear out the money within a ten-year timeframe.

Who is considered an exception to the rule? These five categories of beneficiaries do not follow the same ten-year timeline: a spouse, minor children of the deceased, legally disabled or chronically ill persons, or a beneficiary no more than 10 years younger than the original IRA owner. But minor children of the deceased will have a ten-year timeframe to withdraw the money once they reach majority.

If you have your trust listed as a beneficiary, you may want to quickly amend that. Otherwise there may be some unintended consequences based on how it is set up and depending on the age of your beneficiaries. Make sure your trust clearly executes your wishes for each of your beneficiaries.

Whether you have a trust or not, now is a great time to review who your beneficiaries are on all of your accounts to ensure that it is properly listed. Be sure to consider the rules of the SECURE Act as you review your beneficiaries and work with a professional to understand how the SECURE Act will impact your overall financial plan.

Listen to the full episode to hear more in-depth details regarding inherited IRAs or click on the timestamps below to hear a specific segment.

[0:47] – What are inherited IRAs and how does the SECURE Act change it?

[3:09] – Other than a few exceptions, you will have to clear out your inherited IRA within 10 years.

[4:00] – The money is taken out sooner and therefore taxed sooner.

[4:48] – What are the exceptions to the rule?

[6:39] – Minor children will have a ten-year timeframe once they meet majority.

[7:12] – If you set up your IRAs to list your trust as your beneficiary, you’ll want to talk to an estate planning attorney right away.

[10:48] – When you inherit money, that’s not a bad problem to have, but you’ll want some good advice on how to best handle it.


More From David:

The host: David Dickens

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