For most families with a loved one with disabilities, much of the assets which will be used for the loved one’s long-term needs are found in pre-tax accounts, such as IRAs.
SECURE Act Means Drastic Changes to Retirement Account Inheritance Rules
Congress recently passed, and the President signed into law, the “SECURE Act” (Setting Every Community Up for Retirement Act of 2019), which drastically changes how inherited retirement accounts are treated.
If you are using a pre-tax retirement account to pass assets on to your heirs, the Act drastically limits their ability to “stretch” withdrawals out over many years. Stretching – taking only a small amount of funds every year then paying taxes only on the amount of those withdrawals – allows the account to grow larger over time. It results in tax savings and financial growth for your loved one, at the expense of the U.S. Treasury (this is why Congress wanted to change it).
What does this elimination of the “stretch” mean in practical terms? Most significantly, it means that most beneficiaries of a retirement account will have to withdraw all the money in the account within ten years following the death of the account owner. This creates a real financial risk for your heirs because the longer they wait to withdraw the funds, the bigger the tax hit they will receive.
For example, if they wanted to delay dipping into the account, they could find themselves in a situation where they’re required to take outKeep reading ...