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Have you read about how the Secure Act ended the Stretch IRA?
The stretch IRA is dead - InvestmentNews
Posted from investmentnews.com
Investing
Money
Retirement
Posted >1 y ago
Responses: 3
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If you received an IRA as a beneficiary prior to 2020, you can still stretch it (maintain and make small required taxable withdrawals) during your lifetime. If you received it after 2020, you have to make all your taxable withdrawals and close account within 10 years.
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TSgt Cinthia W.: There is also quite a conundrum in the way in which one can bequeath an IRA/401(k)/Roth IRA/TSP to another person upon death. It used to be that the IRA/401(k)/Roth IRA/TSP could be bequeathed to another person upon death. Non-spousal beneficiaries could take the option to and that person could then gradually spend the monies down. Under the new rules, the money has to be withdrawn completely within ten years of the owner's death. This is driving a lot of estate planners up the wall, especially where the IRA/401(k)/Roth IRA/TSP is set to go into a trust fund for a child with disabilities or a spouse with disabilities. The tax ramifications are substantial in these areas. I strongly urge everyone with a IRA/401(K)/Roth IRA/TSP to talk with an estate planner as soon as possible so as to look at what may need to occur, especially if the beneficiary is a spouse or child with a disability in which a special needs trust has been or needs to be set up.
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2d Lt Cinthia W.
Patricia Overmeyer This is not exactly true for the TSP and some 401(k) plans, the TSP by law goes to the spouse. He or she may keep the funds invested in the TSP via a Beneficiary Participant Account (BPA) and spread out the payment over their lifetime. But when they die, the BPA has to be closed out lump sum and distributed per the designated beneficiaries. Same as under the SECURE Act. Spouses will still be allowed to spread the withdrawals out over their lifetime, for all the accounts the writer mentions above.
In regards to having to withdraw the entirety of funds within 10 years, it is not exactly true for spouses for Traditional or Roth IRAs, the TSP and some 401(k) plans. Children of the account owner have ten years from the date they reach the age of majority for their state, and of course there are other exceptions such as disabled or special needs.
The tax ramifications based on these changes won't necessarily be as impactful on the surviving spouse as it would be for others. These changes are more so designed to have taxes paid sooner rather than later.
In regards to having to withdraw the entirety of funds within 10 years, it is not exactly true for spouses for Traditional or Roth IRAs, the TSP and some 401(k) plans. Children of the account owner have ten years from the date they reach the age of majority for their state, and of course there are other exceptions such as disabled or special needs.
The tax ramifications based on these changes won't necessarily be as impactful on the surviving spouse as it would be for others. These changes are more so designed to have taxes paid sooner rather than later.
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Patricia Overmeyer
2d Lt Cinthia W. - I was recently talking with an estate attorney regarding this issue for TSP due to the fact that I work in family law. The estate attorney is most concerned about the Special Needs Trusts which are set up for the children/spouses of the servicemember's TSP. The way it appears is that these will be affected by the new law in that SNTs for spouses cannot "elect" the lifetime payout unless specifically written into the SNT. There were no exceptions which were written into the act for SNTs. In a divorce, the TSP is divided or put into SNT for a former spouse or for a child with a disability. So tax implications are just part of the issues involved with the 10 year payout. There are also issues regarding how this will impact other types of programs which people with disabilities receive. And this is exactly what I have to deal with in my practice, how to set the distribution in such a way as to minimize tax implications and program impacts.
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