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July 23, 2020 at 03:03 PM
“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.
