Why You Should Review Your IRA and 401(K) Beneficiaries ASAP

  • Estate Planning
  • Illinois Probate Law
  • Trusts
  • Wills
Why You Should Review Your 401(K) Beneficiaries ASAP | Attorney Mario Godoy | Estate and Probate Legal Group

Under new retirement rules, IRAs (individual retirement accounts) and 401(k) beneficiaries may not see their inheritances for a decade under the newly passed Secure Act, and when they do get the money, they may be taxed heavily for it. The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, includes 29 provisions to increase access to tax-advantaged accounts and preventing older Americans from outliving their assets.

Under the new retirement legislation which was signed into law before Christmas, beneficiaries of inherited IRAs will need to withdraw that money within 10 years, reports MarketWatch. After the 10th year, any money that is left in the IRA must be taken and the account closed, regardless of the tax consequences.

What Is A Stretch IRA?

The SECURE Act ends the required minimum distributions for inherited IRAs, known as a “stretch IRA”, and beneficiaries need only ensure all of the money is taken out within 10 years. Stretch IRAs are an estate planning technique that permitted an heir to defer IRA distributions over a long period of time, deferring income tax and permitting the IRA balance to compound income tax-free. Stretch IRAs could be passed on from generation to generation while beneficiaries enjoyed tax-deferred and/or tax-free growth.

The SECURE Act has a significant impact on many estate and retirement plans. Estate planning attorney Mario Godoy advises that all benefactors and beneficiaries should review their IRA and 401(k) beneficiaries and estate plans with the lawyer who drafted their will, or who will oversee their trust, and any other inheritance documents, to confirm their wishes will still be carried out and that their beneficiaries are not subject to excessively taxed assets, or no access to that money for years.

Meet with an estate planning attorney to help you prepare for the unknown and the unexpected. Though it may be tempting to put off, creating an estate plan can help prevent serious issues down the road. When you work with an attorney to decide what will happen to your assets after you die, they can create an estate plan that gives you peace of mind today. To talk to an estates and probate attorney contact the Estate & Probate Legal Group in Lombard Illinois at 630-800-0112.