On January 1st, 2020, the SECURE (Setting Every Community Up for Retirement Enhancement) bill came into force, which made extensive changes to the regulations on retirement assets.
Approved by the Senate on December 19, 2019 and signed a day later by President Donald Trump, the bill practically ended the so-called Stretch IRA.
Stretch IRA is the income expansion strategy used by many heirs of Individual Retirement Accounts (IRA), which are transferred from generation to generation to take advantage of the deferred and/or tax-free growth of the assets contained in it.
Under the new law, beneficiaries of IRA accounts under the name of non-spouses will have to withdraw all funds from the account within 10 years after the death of the original owner and will no longer be able to extend minimum distributions over their lifetime.
To whom it applies:
– IRAs inherited after December 31, 2019.
– Roth IRAs as well as traditional IRAs.
– Defined contribution plans (401(k) and similar).
Not applicable cases:
– Minor children.
– Individuals with disabilities or with chronic illnesses.
– Beneficiaries who are no more than 10 years younger than the original owner.
– A living spouse, who can continue to extend the plan on their own behalf.
Those who have inherited an IRA from 2020 or are likely to inherit in the future should contact Drummond Advisors’ financial or tax teams to ensure they are in compliance with the new rules.