IRA specialist Ed Slott. IRA specialist Ed Slott.

“Get on your horse!” Ed Slott of Ed Slott & Co. reminded folks Wednesday, because the elimination of the stretch IRA under the Secure Act is in effect now. “If a client dies today, their estate plan will probably not work out.”

The elimination, Slott reiterated during a virtual discussion during the AICPA’s Engage 2020 conference Wednesday, mostly affects large IRAs.

The Secure Act limited the “stretch” tax deferral benefits of inherited IRAs to 10 years for most non-spouse beneficiaries beginning in 2020.

Not everybody loses the stretch IRA, Slott said. There are categories of people that Congress called “eligible designated beneficiaries” who are exempt from the elimination of the stretch.

They are:

  • Surviving spouse
  • Minor children. “Be careful here,” Slott warned. “I see a lot of mistakes in this area.” Grandchildren are not included. Minor children, he said, “are almost nobody,” he continued, because “it’s minor children of the deceased IRA owner. Think about it: if most IRA owners die at the age of say, 80, what is the likelihood that they have a 14-year-old child? Highly unlikely.”
  • Disabled and chronically ill beneficiaries
  • Other non-spouse beneficiaries not more than 10 years younger than the IRA owner. “Congress said here: anyone around the same age as the IRA owner, let them have the stretch.”

Another exception: Anybody who inherited an IRA in 2019. “Remember the new law grandfathered those people,” Slott said. “So the rules I’m talking about apply to a death in 2020.”

Slott said in a separate email to ThinkAdvisor Wednesday that “advisors should also be alerting clients” to the looming Aug. 31 deadline to return unwanted required minimum distributions.

“I’ve said many times before, I’d like to see Congress provide seniors with retirement relief by eliminating all lifetime RMDs on IRAs and company plans,” Slott told ThinkAdvisor.

“There’s no point to them anymore other than to annoy seniors. There’s no point to lifetime RMDs, since now under the Secure Act Congress has provided an end date with the 10-year rule for most non-spouse beneficiaries. The account will have to be emptied and taxed by that time anyway, so why even have lifetime RMDs anymore. It would be a welcome relief to all retirees who can then take and pay tax only on what they need, not what they are forced to withdraw.”

Providing this relief “would also eliminate the confusion and tax problems when some RMDs are missed or miscalculated exposing retirees to potential 50% penalties,” Slott continued.

“Congress would find that even without RMDs, they will still get most of that tax revenue anyway since most people of RMD age need to withdraw the funds to live on anyway, but at least they wouldn’t have to worry about how much they must withdraw. And for those who don’t need the funds, the tax revenue would be received by the end of 10 years after death when most non-spouse beneficiaries will have to withdraw and pay the tax.”

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