Nicholas Scheibner is quoted on this topic in two separate articles in NJMoneyHelp.com by Karin Price Mueller, originally published on March 4, 2020 and March 23, 2020.
A 60-second read by Nicholas Scheibner, CFP®: There are some things to keep in mind regarding the SECURE Act rules for inherited IRA beneficiaries and the 10-year distribution window:
- Beneficiaries don’t have to take funds out every year, so they can work with their tax planners to determine the smartest time to take the distributions. They could take it all out in the final year, thereby allowing the funds inside the account to grow tax-deferred. Or they can choose their lowest income years to tax larger withdrawals.
- To minimize the impact of the new SECURE Act rules, talk to your advisors about Roth IRA conversions. A Roth IRA is a great estate planning tool as any distributions from the accounts will be tax-free.
- Once you retire, you may find yourself in a lower tax bracket. This is especially true if you retire before age 72, and before Required Minimum Distributions (RMDs) are required. There may be a window of time where you can maximize the Roth-conversion strategy before your taxable income potentially goes up due to RMDs.
- Finally, you should look at which accounts you use now to fund your own retirement needs.
Any time you are planning for your estate, you should consider not just the taxes, but your overall wishes for the money you are bequeathing to your heirs.
- If your main goal is to pass on assets to your children in the most tax-efficient way, bequeathing investments with a large capital gain allows your children to inherit those investments with a date-of-death-cost basis. If you are currently using a brokerage account to fund your retirement goals, work with your advisors to analyze the option of using a portion of your IRA instead.
- Since an Individual Retirement Account (IRA) is a tax-deferred account, you do not have to worry about the tax consequence of buying or selling the securities within that fund. Any gains or losses are not realized within an IRA.
- That is different from a regular brokerage account, where securities do not have to be sold, and would receive a “step-up” in cost basis upon your death.
- However, keep in mind that your advisor and/or custodian may charge a fee for the sale of the stocks. If there are transaction fees, your beneficiaries may wish to hold the securities so they may seek other avenues with lower or zero commissions.
If you have any further questions, please reach out to your Baron Team.
Disclosure: This is a general communication being provided for informational purposes only. Past performance is no guarantee of future results. Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research, tax or investment advice. Please consult your tax planning professional for personal tax advice.