Perspective | No, your IRA should never be a means of passing on your wealth

<pre><pre>Perspective | No, your IRA should never be a means of passing on your wealth

However, one of the most important changes concerns the IRAs or 401 (k) accounts given to the beneficiaries. As part of their estate planning, people can pass on everything that is still available in their tax-privileged pension accounts.

If you inherit an IRA or defined contribution plan such as 401 (k) from a non-spouse under applicable law, you will need to make the required minimum distributions (RMDs). However, you can extend the payouts over their lifetime to minimize the tax hit. In the financial and estate planning industry, such a strategy is referred to as a "stretch IRA". It is known as the "stretch IRA" because in some cases the required minimum distributions can be stretched over decades so that the funds can still be deferred for tax purposes.

From this year, however, the security law provides for a period of ten years to withdraw the money. There are no minimum payouts, but beneficiaries have to withdraw all the remaining money and close the account after a decade. This rule – an increase in revenue – would help offset tax losses due to other changes under the Secure Act. For example, the new law increases the age from which a mandatory minimum payout must start from 70½ to 72½. Currently, people who reach 70½ must obtain RMDs from their individual retirement accounts (IRAs) and company pension plans.

The Wall Street Journal editors criticized the change affecting stretch IRAs.

"Favorable tax treatment is not a sacred act," wrote the editors. "However, before you can save money on a special account for decades, you have to be able to rely on future politicians not rewriting the rules."

Financial advisor Philip DeMuth wrote in a Wall Street Journal post last July: "Like tomb robbers who open King Tut's tomb, Congress can't wait to get hold of America's retirement assets."

There is nothing wrong with minimizing your taxes or the tax bill for your heirs. This is a smart move. However, IRAs and 401 (k) s should not be used as a means of transferring wealth. You should encourage people to save by giving tax breaks to participants and / or account holders – not their children or children. The gap created by the law that allowed beneficiaries to increase their tax burden was a bonus and not a claim that should never be touched.

The provision for stretch IRAs would generate revenue of $ 15.7 billion, according to the Congressional Research Service.

Brian Graff, the chief executive officer of the American Retirement Association, argued in a post last summer for the National Association of Plan Advisors.

"We have nothing against estate planning and we certainly have nothing against someone trying to cut their taxes," Graff wrote. “However, in order to preserve the provisions of the Secure Act that we believe will help improve the pension security of millions of Americans, Congress decided that the legislation needed to be revenue-neutral. Ultimately, we came to the conclusion that the enormous potential benefits of pension legislation outweigh the “pain”. "

In an interview, Graff also pointed out that the strategy of IRA estate planning is not widely used by most Americans.

"Only a certain class of people has so much money to give to their grandchildren and children," he said. "The political basis for why Congress made this change was that we should give tax breaks to people who save for retirement."

Aron Szapiro, Director of Policy Research at Morningstar, also sees no problem with the new rule for inherited IRAs.

"I don't think that's unreasonable," said Szapiro. "These accounts weren't designed to be large cross-generational tax avoidance tools."

There is often confusion with the change. For example, the Secure Act provides exceptions for the stretch IRAs:

– The employee's surviving spouse.

– A child of the worker who is not of legal age.

– A disabled person.

– A chronically ill person.

– A person who is not older than 10 years than the deceased employee.

Here's a reader's question about their inherited IRA related to the exceptions.

Q: I am a 64-year-old woman with advanced, recurrent ovarian cancer. My long-term forecast is not a good one. It's a pretty good bet that my healthy 83-year-old mother who is struggling with social security will survive me, maybe a decade or more. My mother and friend (59 years old) are currently my IRA beneficiaries. With the new law, can my mother and friend still inherit my IRAs and take RMDs that span their own life expectancy? Or will they have to empty the IRA within 10 years, as the new law stipulates?

A: Christine Russell, Senior Manager for Retirement and Pensions at TD Ameritrade.

One of the most significant changes resulting from the Secure Act is the removal of the “stretch” rule for most non-spouse beneficiaries of inherited IRAs. In the past, the stretch regime for non-spouses meant that they could distribute their life expectancy. For pension account holders who died in 2020 and later, most non-spouses have 10 years to debit the account. This could be the case for older beneficiaries such as the healthy 83-year-old mother if she does not meet one of the following exceptions.

There are exceptions to the new Secure Act ten-year rule for certain illegitimate “Eligible Designated Beneficiaries”, including: a beneficiary who is no older than 10 years than the deceased account holder and a beneficiary who meets the definition of disabled or chronically ill under the internal revenue code. These eligible designated beneficiaries can continue to make IRA distributions about their life expectancy. In this situation, it sounds as if the 59-year-old friend could be classified as a legitimate beneficiary based on the information provided. In this way, he may be able to make distributions from the inherited IRA based on his life expectancy.

The exceptions – and the other new provisions of the Secure Act – require careful analysis. We therefore strongly recommend that the reader should contact a tax professional. This is not intended as tax advice. This response assumes that the reader's mother and friend are the primary beneficiaries (and not quotas) of their IRA accounts. It is also believed that the beneficiaries will claim the IRA account in good time after death. It is important to note that this information is based on the law passed on December 20, 2019. It is common to receive additional regulations from the IRS after a law has been passed, and these IRS regulations may further refine or modify the information provided herein.

Readers' question of the week

Q: How would that affect my social security if I moved to Nova Scotia and bought land there?

ON: "If you are a US citizen, you can continue to receive payments outside of the United States as long as you are eligible and in a country where we can send payments," said the Social Security Administration (SSA). “When we say that you are outside the United States, we mean that you are not in one of the 50 states, the District of Columbia, Puerto Rico, the US Virgin Islands, Guam, the Northern Mariana Islands or American Samoa at least 30 Days in a row. We'll consider you "outside the US" until you return and stay in the US for at least 30 days in a row. "

There is one exception when you receive your money. The Ministry of Finance prohibits payments to people residing in Cuba or North Korea. "If you are a US citizen residing in Cuba or North Korea, you can receive all of the payments we withhold as soon as you move to a country where we can send payments," the agency said.

Here's something interesting. Your benefits are calculated in US dollars. The SSA does not increase or decrease your benefits based on international exchange rates.

Please visit me next week (January 9th) at 12 noon (Eastern Time) for the first live chat in 2020. I'll answer questions about your money.

I live every Thursday from 12pm to 1pm. (Easter).

Retired rants and raves

Her thoughts: How do you assess the change in the treatment of inherited IRAs in the Secure Act?

I am also interested in your experience or concerns about retirement or aging. You can rave or rave. Send your comments to, Please enter your name, city and state. Enter "Retirement Rituals and Raves" in the subject line.

Mary McQueen from Charlotte was annoyed about the inherited amendment to the IRA in the Secure Act.

"I believe that the Secure Act has some good aspects, but I am very upset with the change that will affect non-marital inherited IRAs," she wrote. “While my husband and I were working, we contributed to 401 (k) s sponsored by the employer. We have believed for years that after the lapse, any remaining funds in these IRAs will be passed on to our beneficiaries to give them the opportunity to access funds throughout their lifetime. A few years ago I inherited a humble IRA from my father, whom I founded as an inherited IRA, and I took the RMDs every year. The account has grown beyond the original amount even after the RMDs have been withdrawn. I am proud of my parents' financial planning, which they benefited from in their retirement years, and I am fortunate that they were able to pass on a financial legacy to me. It annoys me that our children, who are our beneficiaries, have to empty their inherited IRAs within 10 years, which leads to higher taxes. Our plan and hope was to provide our children with financial support after our death without creating a tax burden for them. Unfortunately the rules have changed that. "

Romayne from the district wanted to rave about the benefits of early and frequent savings for retirement. “I have been working and contributing to my employer's 401 (k) plan since I started my career immediately after graduating from college. I have a friend who worked for a company in Richmond, VA and contributed the maximum percentage for their 401 (k). [She] belongs to the 401 (k) Millionaire Club. So it is achievable. I started small and contributed what I could and increased my contribution percentage when I got a raise. I understand that contributing to a 401 (k) plan can be difficult. It is extra money flowing from our paychecks, but it is so beneficial to contribute something to gain future financial freedom. "