Have An IRA Or 401(K) That You Might Leave To Your Heirs? If So, You Need To Know That The Government, And Both Political Parties, Are Preparing To Hit Your Heirs With Some Very Negative Tax Consequences… And What To Do About it

As you may have noticed, the Republican and Democratic parties don’t agree on very much these days.  But the one thing that both parties appear to support (in a big way) is something called the “Secure Act.”

Now if you’ve seen the media coverage about this, you’d think it was all happiness and unicorns.  And they always give these bills names that sound fantastic and helpful. Almost every member of the House voted to pass this thing.  And the articles tell us how it’s going to be great and will allow more small businesses to create 401(k)s so that more Americans will save for retirement.

OK.  That does sound good.

But…

What no one is telling you is that this bill, now headed for a vote in the Senate, would also force money out of your IRA or 401(k) (when left to your kids or grandchildren) and would tax it at high rates AND at a time when they might also be too young and/or trying to get college financial aid that’s based on income.

(Article Photo Credit Tim Gouw on Unsplash)

So how bad will this be?     

Well, the House bill and Senate bill are a bit different.  But what they have in common is a major change to the deal that the government made with you decades ago.  You see, while you were saving for your retirement, the government told you that you could and should put loads of cash into your retirement.  The deal was also that you could leave that to your spouse and then to your kids or grandchildren who could also “stretch” the inherited IRA, pay the tax over time, and then use it for their own retirement.

Under the secure act, the inherited IRA you leave your heirs will now be forced out of that account (starting when the recipient reaches 18 years of age or even earlier) and will completely distribute over the next five or ten years (depending on the version of the law).

This means that young adults will receive high levels of taxable income before they’re old enough to handle it in a mature way, and worse yet, right when they’re also going to be applying for financial aid in college.

That’s a bad result.

So if you have a large retirement plan (and/or an IRA trust) that’s going to your children or grandchildren, you need to stay tuned to our website, our emails and to this briefing.  As soon as we have a final bill we’ll let you know what to do.  

But if you’re overdue or just ready to update your estate planning to get a new trust, will, or other documents, just call our office at 610-933-8069  to book an appointment, to get the paperwork and to grab our newest resources.

David M. Frees, III
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Attorney, Speaker and Author
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