New 2020 Tax Law Ends The Stretch IRA

Theodora Vaporis

Under the law prior to January 1, 2020, if you inherited an IRA you could stretch out the required minimum distributions over your own lifetime. Stretching an IRA in this way allowed beneficiaries to receive income but also continue to realize the benefits of a tax advantaged investment. This tax benefit has now been killed by the new law signed by President Trump last week as part of the government’s spending bill.

Under the new “Secure Act” which stands for “Setting Every Community Up for Retirement Enhancement” effective January 1, 2020, anyone who inherits an IRA (with an exception if you are inheriting it from your spouse) will have to take his or her inherited IRA distributions over ten (10) years. This means you will be taxed sooner and at higher rates than under current law.

You may want to meet with your financial advisor and CPA to consider whether you should convert your IRA into a ROTH IRA. You would be required to pay the taxes now but your beneficiaries’ withdrawals would be tax-free under current law. Other options to discuss include “qualified charitable contributions” which is when you use the IRA to make charitable donations that you would ordinarily make with other assets. You may also consider using more of your retirement assets during your life and gifting more from your taxable accounts at your death.