Contributed by: Nick Defenthaler, CFP®, RICP®
In December 2019, the SECURE Act was signed into law, it has had a material impact on current and future tax planning since its implementation in 2020. This new legislation carries several critical updates for investors, but the most meaningful change affects an individual’s plan to transfer or receive generational wealth. The elimination of the “Stretch IRA” for most non-spouse beneficiaries will change the most effective planning strategies wealth managers use to help beneficiaries who will be inheriting retirement accounts now and in the future.
The three major changes from the secure act are:
The Required Minimum Distribution (RMD) age went from 70 ½ to 72.
Those 70 and older can now make Traditional IRA contributions (must have earned income)
A large scale Inherited IRA Overhaul, aimed at complicating tax withdrawal strategies from Inherited IRA accounts aka “the death of the Stretch IRA”
The most impactful change from this list is the Inherited IRA Overhaul, the contributing factor that will affect many financial and estate plans is:
RMD’s for many inherited IRA’s are no longer required, but in most cases, the account must be liquidated within 10 years of the year of death of the primary account holder.
This change will affect all pre-tax retirement accounts, while after-tax accounts such as the Roth IRA distributions will house different tactical distribution strategies.
During the presentation we talk through some creative planning strategies that can be implemented to potentially save current and future taxes under these new legislative measures, such as: using Roth IRA conversions to reduce taxable IRA assets and increase tax-free dollars, Tax-Efficient Charitable Giving through Qualified Charitable Distributions (QCDs), and beneficiary distribution planning to nullify tax burden.
Finally, we use a pair of case studies to demonstrate how these strategies can reduce tax liability and maximize the achievement of client goals.
To better understand why a retiring couple who are beginning to plan their legacy, or an individual inheriting retirement accounts will need quality tax planning advice - now more than ever, will have their questions answered during this talk.
Applicable timestamps for specific segments are listed below for convenience:
1:17 – Center for Financial Planning Team Introduction
2:52 – About the Host (Nick Defenthaler)
3:40 – The Secure Act Overview
7:20 – Death of “The Stretch” IRA
11:32 – Today’s Inherited IRA Rules
15:49 – Tax Environment as a Result of TCJA
18:26 – Getting Creative - Roth IRA Conversions
24:40 – Getting Creative – Tax Efficient Charitable Giving
29:12 – Getting Creative – Beneficiary Designations
31:12 – Case Study – Retiree Couple & Legacy Planning
39:38 – Case Study – Beneficiary of an Inherited IRA
49:19 – Creating a Tax Plan
Any opinions are those of Nick Defenthaler CFP®, RICP® and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. IRA tax deductibility and contribution eligibility may be restricted if your income exceeds certain limits, please consult with a financial professional for more information. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.