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The SECURE Act and IRAs — estate planning without the stretch
Fundamentally, IRAs and qualified plans are designed to be retirement assets, not legacy assets. But the reality for many high-net-worth clients is that these plans, which were funded during working years, end up not being needed to meet retirement income needs, and are thus are earmarked for heirs. Because these accounts were funded on a tax-deferred basis, they don’t receive a step-up in basis at the participant’s death, but rather distributions are taxable at the beneficiary’s tax rate. To help mitigate this tax bite, under prior law, clients would take advantage of special rules allowing these taxable distributions to be “stretched” over the lifetime of the beneficiary.
Under the new SECURE Act, which went into effect on January 1, qualified plans must generally be distributed within 10 years of being inherited, essentially bringing the end to the stretch IRA concept. Now is the time to talk to your clients about this new law, especially those who do not need their retirement accounts to support their retirement.
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