• George Fotiou

The SECURE ACT is Law, Now What?

The SECURE Act, passed at the end of last year, represents the most consequential reform to tax-qualified accounts in nearly two decades, and its impact will be felt most by retirees. We’ve been closely following its progression. If this is the first you’re hearing of the SECURE Act, catch up by reading a few other blogs we’ve written on the matter here.

By far the largest obstacle the SECURE Act presents to IRA owners is how best to leave funds to their beneficiaries, now that there is a truncated withdrawal period which greatly impacts the utility and tax burden of the account. Over the next few decades, there will be a shift of over $7 trillion dollars from one generation to the next in the form of inherited IRAs. The IRS has been waiting to tax this accumulated wealth and has done two things to attempt to secure more of it in the future.

The first is by reducing tax rates. Since 2017, this has – and will continue to – make distributions from IRA’s more attractive to the current owners. That is, at least until 2026 when these tax credits are set to expire.

The second is via the SECURE Act, the amount of time an IRA can be stretched for most beneficiaries has been truncated to a 10-year maximum. Since the individuals inheriting these funds are likely still in the workforce, they will have to pay much more in taxes than did their benefactors, as the mandatory distributions may push them into a higher tax bracket.

There are, however, many strategies retirees can implement to navigate the implications of the SECURE Act. One option is to take advantage of current tax rates by taking distributions and converting them into a ROTH IRA, if possible. Although Roths are still affected by the SECURE Act’s 10-year rule, the distributions from them are tax-free, allowing beneficiaries to retain more of the hard-earned assets.

Another workaround is for retirees to use IRA distributions to purchase a life insurance policy on themselves. This can be a one-off policy or one added to their existing portfolio of insurance plans. Since life insurance offers a tax-free payout, spending a little money now will save your beneficiaries much more in taxes – a win-win for you and your family’s legacy. The caveat for this strategy is, because it’s life insurance, the policyholder must be relatively healthy in order to qualify.

Contact us today for a comprehensive review of your current portfolio to determine how best to navigate the SECURE Act to protect you and your family’s financial future.

To speak with a specialist, click here.

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This information is designed to provide general information on the subjects covered.  Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement.  Please note that Olympic Golden Retirements LLC and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney. Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer.  Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by Olympic Golden Retirements.