Santa Barbara Maritime Museum Logbook

by Denise Stevens

There have been many retirement-related rule changes over the last several years that you need to better understand in order to incorporate into your financial and estate planning strategies.  For instance, did you know that….

• The original SECURE Act eliminated the “stretch” option for most non-spousal IRA beneficiaries   Let’s say you inherit an IRA account from a parent.  Under the old rules, required distributions from the inherited account could be based on your own life expectancy, typically reducing the amount you had to take out each year.  New inherited IRA rules dictate that all inherited IRA assets be liquidated and distributed within 10 years. This was assumed to mean that the beneficiary could determine how much to take in any year as long as full liquidation occurred by 10^th year. However, the IRS has recently clarified and mandated that the inherited IRA beneficiary must take annual mandatory required distributions, with any final amount taken by the 10^th year. 

• If you name your estate as the beneficiary of your IRA, the mandatory distribution period is 5 years, accelerating taxable distributions.

• Charities do not have to pay taxes on the retirement account assets if they are named a partial or full beneficiary of the IRA account, thus maximizing money that could go to their work.

• The long-familiar 70 ½ required minimum distribution starting date for traditional IRAs and most qualified plans has been pushed to age 73.

• No More RMDs for Designated Roth Accounts: Before 2024, designated Roth accounts in qualified retirement plans mandated that lifetime Required Minimum Distributions be taken from Roth accounts, including 401(k) and 403(b)s. However, this requirement has been eliminated, ensuring parity with Roth IRAs.  This change removes the need to roll designated Roth accounts to Roth IRAs, as was required to circumvent the pre-2024 RMD obstacle

• Retirement accounts (as well as insurance and annuity policies) ask you to specifically name beneficiaries. These account assets pass based on those beneficiary designation forms so make sure you have submitted beneficiary information correctly and periodically review this information.  It is easy to make changes but if you do so (by filing a new beneficiary designation form), make sure the plan sponsor receives and records the update.

These rules could result in unintended consequences or have deleterious income tax implications for some intended heirs.  It could be worthwhile to discuss options with your professional advisors to ensure your peace of mind.