This isn’t an issue we thought we would ever have to discuss. For the truly fortunate who have saved early and often and kept that money in their retirement plans their entire career, they might have to revisit those plans due to the recent SECURE Act. Some savers have accumulated significant assets over their life and don’t intend to spend it in their lifetime.
These are the fortunate few who are looking to take as little money out of the plans as possible and just meet required minimum distributions (RMDs) after age 70 1/2 (or 72 depending on your date of birth under the SECURE Act). If the plan was to pass these assets onto anyone other than their spouse, the math has changed a bit on the best path forward.
The SECURE Act eliminated the Stretch IRA provision as we knew it. Under the old rules, your beneficiary could stretch those distributions of their lifetime. Assuming this was a child or grandchild, that significantly extended the timeline that those assets could be shielded from taxation. Under the new rules, all non-spouse beneficiaries will need to have that money moved out of the IRA within ten years. There are some exemptions regardless of the strategy utilized, the window is shortened significantly.
There is some advance planning that retirees can do to minimize this burden but one of the easiest may simply be to put future contributions into Roth sources. While the Roth IRA will still have to be depleted within ten years, the income tax burden has already been taken care of and thus won’t push beneficiaries into a higher tax bracket.