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December 08, 2023 at 05:04 PM
While many elements of the original Secure Act were applauded by the financial services community, that was not universally the case. A limited number of the law’s provisions were accepted as unfortunate but necessary “revenue raisers” to help offset the cost of implementing the retirement-related legislation.
Among these was the provision that killed the so-called “stretch IRA” — i.e., the part of the law that sharply limited the distribution options for most individual retirement account beneficiaries who inherited accounts in 2020 or later. Post-Secure, most beneficiaries must now fully distribute the IRA assets and claim the proceeds as income for tax purposes within a 10-year window.
Surviving spouses, however, were carved out as one of the few enumerated groups of individuals who continue to be eligible for taking inherited IRA distributions over their life expectancy — thereby stretching the IRA.
This is not a surviving spouse’s only option, though, and the choices they make will affect the rate of distributions that must be taken from the inherited IRA. Because surviving spouses have limited time to choose their approach, experts warn, it’s important to ensure that clients understand their choices and the consequences.
Clearly, the rules and options for clients in this situation come with a lot of nuance, especially with various provisions of both the original Secure Act and the Secure 2.0 legislation still in the process of implementation. As such, advisors should make an effort to familiarizes themselves with the options and opportunity facing their clients.
To this end, see the accompanying slideshow for 10 important insights about spousal IRA rollovers and inheritance rules, drawn from the ALM Tax Facts library.
Want more tax-focused insights? Find current and accurate answers to your tax questions with Tax Facts.
Slideshow
