IS YOUR IRA INHERITOR-PROOF?
The SECURE Act changed the rules—and most people have not caught up.
You spent years building your IRA. You planned for the IRA to support your loved ones after you are gone. But thanks to the SECURE Act, your IRA might no longer work the way you intended.
What the SECURE Act Did
Before 2020, most IRA beneficiaries could take required minimum distributions (“RMD”) over their lifetimes. That allowed the inherited IRA to grow tax-deferred for decades.
The SECURE Act changed that. Now, most non-spouse beneficiaries must empty the account within 10 years of your death. That short window creates big problems:
- Tax hits: If your beneficiary is still working, those withdrawals could push them into a higher tax bracket.
- Lost growth: A 10-year window shortens the time your IRA can grow tax-deferred.
- Trust mistakes: If you named a trust as the beneficiary—especially a conduit trust—it might force a large lump-sum payout in year 10. That is the opposite of what many trusts are designed to do.
Who Still Gets a Stretch IRA?
Only a few types of beneficiaries still qualify for the lifetime “stretch” option under the new rules. These include your surviving spouse, a minor child (but only until they reach the age of majority), someone who is disabled or chronically ill, or a beneficiary who is not more than 10 years younger than you. These individuals are considered “eligible designated beneficiaries” (“EDBs”). Everyone else—most often adult children—must now follow the 10-year payout rule.
What You Should Do Now
- Check your IRA beneficiary designations. Make sure you have not named someone who now faces unexpected taxes—or a trust that does not work under the new rules.
- Review any trusts you have named. Some trusts need updates to avoid triggering a tax disaster.
- Talk to your advisors. A lawyer can fix outdated language, and a financial advisor can suggest strategies like Roth conversions or charitable giving.
Don’t Let the SECURE Act Wreck Your Plan
Many people still do not know their IRA plans broke when the SECURE Act became law. If you have not reviewed yours since 2020, it is time. One hour of planning today could save your family thousands tomorrow.
If you are interested in learning more about options to protect you and your loved ones, please call us to schedule an appointment. (410) 988-3973. www.TheCoxLawGroup.com
We look forward to working with you!
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This blog post is for informational purposes only and does not constitute legal advice. For guidance on your specific situation, please consult an attorney licensed in your jurisdiction.
