Do you have an IRA? Then I urge you to read the full article.
Why? Because it explains how the SECURE act, enacted by Congress last December, severely and negatively impacted the Stretch IRA strategy.
NOTE: The “SECURE” stands for, “Setting Every Community Up for Retirement Enhancement.”
What exactly was the Stretch IRA?
The Stretch IRA wasn’t another kind of IRA. It was an estate-planning strategy for wealth transfer to any designated beneficiary (other than a spouse). This strategy allowed you to “stretch” the distribution of your IRA over multiple generations … a huge tax advantage.
How does neutering of the Stretch IRA strategy affect you and your heirs?
We’ll tell you the bad news (and some good news) when you read the full article.
Here’s the bad news.
After a traditional IRA owner reaches age 70 1/2, (or age 72 if you hadn’t reached age 70 1/2 as of December 31, 2019), the federal income-tax rules cut in.
They compel you to start taking annual required minimum distributions (RMDs). You’ll also have to pay the resulting extra income-tax hit. Ouch!
If you fail to take your RMD, you’ll owe a 50% penalty (this is not a typo—it’s 50%) on the shortfall! Double ouch! Read the full article for full details.
Here’s the good news.
The good news is, you are required to take out only the specified minimum amount each year from your traditional IRA(s).
The rest of the balance(s) can be left to accumulate earnings on a tax-deferred basis.
Even better, as the original owner of a Roth IRA, you needn’t take any RMDs from the account for as long as you live.
We’ll explain a whole lot more too.
- The 10-Year account liquidation rule
- Who Is affected by the SECURE act change?
- The exception for eligible designated beneficiaries
- A warning about Stretch IRAs held in “conduit” or “pass-through” trusts
- Alternatives to the Stretch IRA
- How to set up a Roth IRA and live with the 10-year account liquidation rule
- The advantages of Roth IRAs
- And much more