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Regulation and Compliance > Federal Regulation > IRS

Ed Slott: IRS Secure Act Regs Are ‘Final Nail in the Coffin’ for IRAs in Estate Plans

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What You Need to Know

  • Advisors need to look into alternative solutions, but much confusion remains about the new rules, he says.
  • Under the regs, IRAs are dead as a long-term planning vehicle, he said.
  • He suggests Congress eliminate RMDs altogether.

One “big message” is clear from the IRS’ recently released proposed regulations on how to handle required minimum distributions under the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019, according to Ed Slott: “In my view, these regs are the final nail in the coffin for using IRAs for wealth transfer or estate planning.”

Advisors “need to look into alternative solutions to clients’ current plans because those plans won’t work anymore as they intended,” Slott, of Ed Slott & Co., told ThinkAdvisor on Tuesday in an email.

While Slott said that he views this “an opportunity for advisors, … they first must have enough knowledge to explain the problems to clients so they can understand why new planning options need to be considered now.”

The proposed IRS RMD regulations, which are effective now, as well as the new life expectancy tables for 2022 “are still not well known by advisors,” Slott continued. “And the advisors that are aware are still unsure of how the rules will work for beneficiaries.”

The new IRS rules “really muddied already existing RMD rule complications from the Secure Act,” Slott said.

‘RIP IRAs’ as Long-Term Planning Vehicles

As it stands now, “we are in the middle of an extreme learning curve on rules that affect clients now. We still need more IRS guidance on how these rules actually work in certain situations where the rules they issued have added more questions.”

Bottom line: “RIP IRAs as a long-term planning vehicle,” Slott said. “There are too many tax landmines just to take your money out of your IRA or to pass it on to beneficiaries. It shouldn’t be that way. Congress needs to completely dismantle this system, and it can be done without losing any tax revenue. My plan … is to completely eliminate RMDs.”

RMDs, he added, “are totally unnecessary especially since all the funds must be withdrawn by 10 years after death anyway, and most people withdraw more than the minimum because they need the money.”

Eliminating RMDs “would simplify retirement planning for all, and would generate more revenue for the government,” Slott argued. “Congress should love this, but someone needs to get to them to tell them this current labyrinth of RMD tax rules is tortuous and unworkable and just causes anxiety and concern for those who saved for retirement, their families, and for advisors who would rather concentrate on better planning options without all these tax constraints. End RMDs now! End the insanity.”