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"The law simply says you must take out the money after 10 years," notes Slott. "Your heirs could simply leave the Roth alone for 10 years and let the assets grow tax-free--and then take a lump sum. All that growth is tax-free, and it comes out tax-free," Slott adds.
"Enjoy your money," Slott said. "Otherwise, the government is going to enjoy it more than you."
“That child is getting that money at a point in time when he or she is probably in their highest earning years,” says Ed Slott, founder of IRAHelp.com, based in Rockville Centre, New York.
The SECURE Act is the law for 2020 and beyond. Advisers are already scurrying to explain the retirement rule changes to clients, especially those with large IRAs who had planned on a stretch IRA for their heirs. We are receiving an avalanche of questions on exactly how and when this major change will be applied.
The new starting age is 72 for required minimum distributions (RMDs). "The half year part was baffling to a lot of people," said IRA expert Ed Slott, founder of IRAHelp.com. "So that feature is gone. Good riddance."
“The fact that they put all this in there doesn’t mean it will have a major impact,” said Ed Slott, founder of IRAhelp.com. “There’s a lot of trimming around the edges.”
People who have saved $1 million or more in an IRA and plan to pass it on to someone other than their spouses should consider doing Roth conversions, said Ed Slott, president of Ed Slott & Co., which specializes in IRA education and training.
With the stretch IRA no longer an option under the bill, Slott suggests possibly naming a spouse as the beneficiary so that the assets can be stretched across the spouse’s lifetime and then passed on to a grandchild, who would have 10 years before having to draw it down completely.
The demise of the stretch IRA is likely to be unwelcome among financial advisors, who have counseled clients to use them as a way of passing down wealth while minimizing the tax hit. An heir could slowly draw down an inherited account over many decades. But the new 10-year deadline would make the IRA a “lousy estate planning vehicle,” retirement expert Ed Slott tells Kapadia.
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