Congress is making inheritance rules more complicated for people in 2020. Late last year, Congress announced that the estate and gift tax exemption will be increasing this year. The lawyers at Hurtik Law & Associates explain how this new IRS inheritance rule will affect peoples’ inheritance plans.
What Are the New IRA Inheritance Rules?
Congress’ year-end spending package now limits savers who want to extend the life of their Individual Retirement Accounts and ROTH IRAs. In the past, heirs were able to take required withdrawals throughout their lifetime and receive years of income-tax-free or tax-deferred compounding after getting the inheritance. With the “Stretch IRA” young heirs were able to receive payouts for nearly six decades. With this new IRA rule, heirs will only have ten years to receive payouts.
This law automatically takes effect for IRA owners who pass away after December 31, 2019. This means that IRAs inherited before December 31st can still follow the prior law. IRA heirs who are surviving spouses are also still covered by the old rules. There is also an exception for children (18 to 21 years old) heirs who are minors—however, not grandchildren. So, if a diseased parent leaves their 16-year-old an IRA, then their ten-year payout period wouldn’t begin until they are 18 years old.
Who Will Be Affected?
The new IRA rule will primarily affect ROTH IRA owners who are still alive and accelerate their tax bills to convert their traditional IRAs into tax-free ROTH accounts. Many people have made long-term plans with the old IRAs laws, and now people are losing faith in the stability in long-term tax planning.
The new IRAs laws don’t require heirs to make annual withdraws, so ROTH IRA heirs could postpone payouts until the 10th year—then they will receive the maximum amount tax-free payout.
Tips to Manage the New IRAs Rules
If you’re worried about how these new IRA rules may affect the inheritance, you plan on leaving your loved ones; we’ve put together some tips to help you.
- Your Spouse Should Be Your Heir: Since surviving spouses are exempt from the new IRAs rules, leaving the inheritance to your spouse can help you work around these changes. Some have considered leaving their IRAs to their spouse and then having their spouse leave the inheritance to their younger heirs, who would then have the ten-year stretch.
- Review IRA Trusts: Since some types of IRA trusts make no sense under the new rule, it’s vital for people to revisit their trust with an experienced estate planning attorney. This new rule is affecting prior estate planning arrangements for many people, so it’s important to review all plans and get them in order.
- Consider Other Tax-Efficient Options: Some people are looking at other avenues, such as life insurance, to get a better tax-efficient option. It’s best to explain your unique situation to an experienced attorney to find the best inheritance option for you.
- Leave Your IRA As Is: Although the new rule gives people less time to receive payouts, ten years is still a stretch.
Call Our Experienced Attorneys Today!
The new IRA rules have made estate planning complicated for many people. If you’re concerned about how the new IRA rules will affect you, our team at Hurtik Law & Associates is here to help you. With the help of our lawyers, you can eliminate the uncertainty regarding how your affairs will be managed. At Hurtik Law & Associates, we understand how important your family is to you, and we want to do everything possible to ensure they are well taken care of.
Get in touch with our attorneys today at (702) 323-5750 to schedule a virtual consultation!