The IRS has been busy making changes to many of its tax rules. And we have another change to tell you about. If you inherited a loved one’s retirement account, you might be eligible to have the 50% penalty waived.
Under the Secure Act of 2019 (commonly called the ’10 year rule’), any ‘non-eligible beneficiaries’ must deplete the inherited retirement accounts within 10 years. If you do not withdraw the entire amount, the IRS can hand you a 50% penalty on the balance you should have drawn.
A ‘non-eligible beneficiary’ is usually an heir who is not a spouse, minor child, disabled, chronically ill or covered under certain trusts. If you are an adult when your parents or grandparents passed and left you as a retirement account beneficiary, you can collect payments, but they must be gone within 10 years.
In the 2023 distribution calendar year – The IRS will have the 50% penalty waived.
You may be able to spread your distribution payments over a more extended period of time. If you choose to do this, you want to speak with an experienced estate planning attorney to consider how this will affect your retirement plans.
Many people wrongly believe that an estate plan is only a will or trust. But an estate plan consists of several documents that must work together to plan for your future, not only after you pass away. Some documents that an estate planning attorney can help you with are:
You want someone to help you ensure everything works together. Your named beneficiaries on your retirement plans must match who your will states will receive your 401(k) benefits. Trying to get everything together can be overwhelming, and having an attorney on your side will help.
Talk to an experienced estate planning attorney to ensure your inheritance will work with your retirement and long-term plans. Contact us at the Estate and Probate Legal Group today at 630-864-5835.
AREAS WE SERVE: Cook, DuPage, Kane, Lake and Will counties