Beneficiaries, or inheritors, of non-spousal IRA accounts under 2019 law may have been able to withdraw required minimum distributions over their lifespan, ensuring a continual flow of income and minimizing tax burden.
The Secure Act will require beneficiaries to withdraw all assets of an inherited account within 10 years. There are no required minimum distributions each year as long as the entire balance is distributed within 10 years.
This change may potentially increase tax burden by bumping beneficiaries up to a higher tax bracket in the year of distribution(s). Tax planning may help to minimize the tax burden on such distributions.
The amount of the inherited IRA combined with other income and current tax brackets will determine whether these and other tax strategies may be helpful.
The Secure Act will require beneficiaries to withdraw all assets of an inherited account within 10 years. There are no required minimum distributions each year as long as the entire balance is distributed within 10 years.
This change may potentially increase tax burden by bumping beneficiaries up to a higher tax bracket in the year of distribution(s). Tax planning may help to minimize the tax burden on such distributions.
- Distributions could be spread out over multiple years within the 10 year distribution time frame to achieve a lower tax bracket when combined with other income each year than if taken all at once.
- A traditional IRA could be converted into a Roth IRA, thus paying the taxes currently, so that beneficiaries would enjoy tax free distributions later under current law when they inherit the IRA.
The amount of the inherited IRA combined with other income and current tax brackets will determine whether these and other tax strategies may be helpful.