You’ve spent a lifetime working hard and building your retirement savings with a meaningful goal: securing your own future and leaving a legacy for your loved ones.
But the SECURE 2.0 Act changed the way inherited retirement accounts are treated. That means your heirs might face a much different tax situation than you expected.
The main thing is, for most non-spouse beneficiaries, inherited IRAs generally have to be emptied within 10 years.
That rule often applies to adult children, grandchildren, and other common heirs.
If you pass away before your Required Beginning Date for Required Minimum Distributions (RMDs) (currently age 73), your heirs can take the money as they want as long as the account is emptied by the end of year 10.
But if you pass away on or after that date, your heirs may have to take annual distributions during that 10-year period, then withdraw the rest by the final deadline.
Which can create a tax problem… if a child who inherits your IRA during has to take taxable withdrawals that push them into a higher tax bracket.
The rules are different for certain beneficiaries. A surviving spouse, minor child, disabled or chronically ill beneficiary, or someone not more than 10 years younger than you could qualify for more favorable treatment.
Roth IRAs also work differently because your heirs don’t owe federal income tax on qualified Roth withdrawals. And they’re exempt from those annual year 1–9 RMDs.
Which is why your beneficiary forms matter so much.
Because your IRA beneficiary designation actually overrides your will. So an outdated IRA beneficiary form can create pretty major tax consequences you didn’t intend.
And some trusts that made sense before the SECURE Act may now force distributions faster than you thought, which can hurt the protection you want for your heirs.
So, what’s your practical next step?
Review your retirement account beneficiaries and ask:
- Are the right people named?
- Are your contingent beneficiaries current?
- Would any beneficiary be forced into a higher tax bracket?
- Is a trust listed, and has it been reviewed under the current rules?
A careful review now can help your retirement savings land in the right hands with fewer avoidable tax surprises.
Let’s sit down and go over the specific tax implications of your retirement account designations so your hard-earned wealth is protected for your loved ones.
