Will Your Beneficiaries Pay for Changes to IRA Laws?
In May, the House of Representatives voted for the SECURE Act and passed it 417 to 3. Now that this retirement reform law is headed to the Senate, it’s a good idea to start thinking ahead to how it could impact your retirement savings.
The goal of the law is to make a few changes to retirement options. Employees at a small business will have a new option for saving while older adults will get more time to save. Unfortunately, the funds for these changes will come from tax changes for Stretch IRAs.
About the SECURE Act
The SECURE Act will bring two major changes to retirement saving. First, 10 or more employees working for a small business will have the ability to sponsor a retirement plan as a group. This creates more lucrative savings options for those previously restricted by the size of the company where they’re employed.
Additionally, 70-1/2 will no longer be the maximum age limit for adults making contributions to a traditional IRA. Instead, they’ll be able to continue putting money away until they reach 72.
Paying for the SECURE Act
Changes like these have to be paid for and Congress plans to secure extra funds by making big changes to Stretch IRAs. In the past, this IRA option allowed non-spouse beneficiaries who inherited an IRA to make small minimum distributions from the account while continuing to let the funds grow, tax-free over their lifetime.
The SECURE Act would place a limit on this, requiring funds to be distributed, and taxed, within 10 years of inheriting the account. This has major downsides for beneficiaries, creating a new tax burden for your children or grandchildren after the end of your life.
Creative Strategies for Handling Changes to Traditional IRAs
If the SECURE Act passes in the Senate, adults with Traditional IRAs may need to make changes to how they are saving for the future of younger generations. Creative strategies for dealing with changes to traditional IRAs included converting to a Roth IRA now, and paying the taxes, with the assumption that the penalty will pay off for beneficiaries later.
Creating a trust, changing beneficiaries and making further investments in life insurance are all other ways to make sure your loved ones are cared for after death. A personal finance advisor can guide you as make changes in light of the SECURE Act.
~ Here’s to Your Financial Health!
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