Revisiting Estate Planning With IRAs and Qualified Retirement Plan Benefits

Over the last 30 years there have been significant changes in the applicable law that impacts considerations in estate planning with individual retirement accounts (IRAs) and tax-qualified retirement plan benefits. Overall, the law has been simplified quite a bit (for example, decisions no longer must be made about whether to “recalculate” or use the “subtraction method” when a taxpayer reaches the required beginning date). Despite the various simplifications, this special category of assets remains more complicated to plan for than most of the other assets that we must help our clients incorporate into their estate plans. Because these assets comprise a very significant portion of the asset base for nearly all of our clients, it is important to make sure they are properly addressed.

Until recently, when the Secure Act became law in December 2019, a key focus in planning was to preserve the opportunity for a client’s beneficiaries to “stretch out” the distribution of these tax deferred accounts for as long as possible to maximize the potential investment return after tax. Because the beneficiaries could take distributions over their life expectancies, this often led clients to consider making the designated beneficiary (after a surviving spouse) their youngest potential beneficiaries (typically grandchildren) and trusts for their benefit. Now, under the Secure Act, the life expectancy of nearly all beneficiaries, other than a surviving spouse, is irrelevant to the payout calculation so selecting the youngest beneficiary possible is no longer a consideration in the estate planning process for tax planning purposes.

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