A provision of the 2019 Secure Act could impact your retirement savings plans or strategies to transfer wealth to future generations.
One of the bill's provisions requires that inherited qualified retirement accounts must be liquidated within 10 years. That means if you inherit an IRA or a 401 plan from someone other than your spouse, the Secure Act could impact your retirement savings plans or strategies to transfer wealth to future generations.
To illustrate the stakes, consider a hypothetical newly retired couple. They have $3 million in assets — $2 million from non-qualified accounts and another $1 million from an IRA. For instance, let's say the couple has a sole heir, a single-filing daughter whose annual income is just under $70,000. Before the Secure Act, she could have inherited a $1 million IRA – which is possible depending on the type of account, market conditions and how old her parents were when they died – without absorbing much of a tax hit. All she would have to do is make sure she didn't take too much, too soon.
Therefore, retirees whose taxable income is less than their heirs' – which is the case for most retirees – should at least consider whether it makes sense to approach things differently. Were they to draw down their qualified assets more aggressively and keep larger non-qualified account balances, here's what could happen:At the same time, they could make strategic withdrawals from non-qualified accounts to ensure that their rate doesn't go up too much .
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