The cartoon above was in the Wall Street Journal earlier this week along with an article titled “Congress Is Coming for Your IRA” by Philip DeMuth. Qualified plans like 401(k)s, 403(b)s, profit sharing plans and IRAs are fantastic retirement savings tools and terrible estate planning tools. With the likely to pass SECURE Act, leaving assets in these account to heirs gets more challenging.
The SECURE Act has already passed in the US House and is likely to pass in the Senate. It makes lots of positive changes and a couple of changes that may create challenges. Here is an example from “What Business Owners And Their Families Should Know About the New SECURE Act” in Forbes on July 2, 2019:
“The new Act, if passed by the Senate (which appears very likely) will require most non-spouse beneficiaries of qualified plans and IRAs withdraw the entire balance within 10 years of the death of the owner. If Richard dies and leaves his IRA to Liz, his spouse, she can take it over her anticipated life expectancy, under the regular RMD rules. If she leaves it to her 25-year old granddaughter, the old rules would allow the granddaughter to take distributions over her life expectancy of 57.2 years. The new rules require her to take the entire balance within 10 years. By our calculations, under SECURE, a $1 million IRA would incur a tax acceleration of about $300,000. SECURE changes inter generational wealth transfer.”
A little planning now can make a big difference in the future. If/when the SECURE Act passes the Senate, you may want to have a conversation with your financial planner or other advisors. While you are at it, you may want to consider leaving a portion or all of a tax deferred retirement account to a Augsburg or another charity. The full amount of a gift made this way passes to nonprofits without taxation. We have information about making gifts in this way posted online here.