Retirement accounts: Ineffective for wealth transfer
By LouAnn Schulfer, AWMA®, AIF®
The SECURE Act implemented sweeping changes affecting retirement accounts, making it obvious that congress wants retirement accounts to be meant for retirement, not used as multi-generational wealth transfer tools. Prior to the new laws taking effect on 12/20/2019, a non-spouse beneficiary could “stretch” the tax deferral granted to retirement accounts across his or her lifetime taking only minimum distributions, pass on the retirement account at death to the next beneficiary who could do the same, and so on and so on. Now, only spousal beneficiaries and “Eligible Designated Beneficiaries” (a new term that came along with the new laws) may avoid the new 10-year rule.
The 10-year rule mandates that the beneficial retirement account be emptied within 10 years. There are no annual required distributions, as beneficiaries may withdraw from the account as they wish. Not zeroing out the account within 10 years would subject the account to RMD penalties: 50 percent of what should have been taken as the required minimum distribution.
Eligible Designated Beneficiaries include minor children of the original account owner until their age of majority or until 26 as a full-time student, disabled individuals, a chronically-ill person, beneficiaries not more than 10 years younger than the original owner, and spousal inheritors.
If your intention is to pass assets on to your children or grandchildren, look to options other than retirement accounts, which are now ineffective for wealth transfer.
LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at (715) 343-9600 or [email protected] www.SchulferAndAssociates.com
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.