Last year, Congress passed the SECURE Act, which was put in place to better ease those who are looking to retire and make the process more accessible for those that need it. However, the SECURE Act (Setting Every Community Up for Retirement Enhancement) included a provision that got rid of the stretch IRA except for a surviving spouse (The Tax Adviser). To learn how this impacts many pre-retirees, keep reading!
Pre-retirees these days now have to withdraw all of their inherited IRA funds within 10 years of receiving it. This means that if a beneficiary wanted to take out a smaller distribution prior to that 10 years, they no longer can stretch that privilege out. Now, all funds have to be taken out within those 10 years regardless of how it affects the beneficiary tax-wise.
Depending on your current financial situation, there could be a few routes to take regarding your inherited IRA (and/or 401(k) as well). In order to make sure you take the best route for your financial future, it is best to consult your financial advisor about exactly which steps you should take.
Beforehand, stretch IRAs and 401(k)s were used as the main source of a lifetime incomes for millions of Americans. Now, they can either withdraw all of the funds within the 10 years, spread out the distributions evenly, or irregularly withdraw funds. Depending on the dynamic of the beneficiary or beneficiaries, the strategy that you go with may be different than another family’s decision.
For those that inherit an IRA or 401(k) from a spouse, the aftermath of the SECURE Act does not really have much of an effect on you. You are still able to stretch out your required minimum distributions (RMDs) throughout your lifetime, whereas if a beneficiary inherited an IRA or 401(k) from someone other than a spouse, the SECURE Act no longer allows for this, as explained above.
No matter your financial situation, there are always ways to strategize and determine the best route to take to maximize your financial future. If you are the beneficiary of an inherited IRA or 401(k), Heritage Wealth Management would be happy to sit down with you, virtually or in-person, to go over exactly what your options are for moving forward with your inherited IRA or 401(k) withdrawals.
As we approach a new year, there will be more adjustments and changes to your financial plans. With your financial advisor, you should discuss any new goals, concerns, and changes to your strategies for the new year.
To speak with one of our advisors, visit https://www.hwmcorp.com/ and call (800) 620-9330.
Sources:
https://www.fidelity.com/learning-center/personal-finance/retirement/secure-act-inherited-iras
https://www.thetaxadviser.com/newsletters/2020/apr/inherited-ira-strategies-secure-act.html