Planning on passing a big IRA to your kids and grandkids? You might be familiar then with the 'stretch IRA,' but that tactic might be on its way out.
New legislation that aims to give workers greater opportunities to save for retirement may put the kibosh on a strategy for passing large individual retirement accounts to heirs.
Tucked away in the bill, however, is a provision that would force most nonspouse beneficiaries to draw down inherited retirement accounts within 10 years of the original owner's death.That strategy allows younger heirs — children and grandchildren, for instance — to take required minimum distributions from the inherited account based on their own much longer life expectancy.
"The question is now, 'Are we comfortable with everything in this IRA going to the kids in a 10-year period?'" he asked.Under current law, if you inherit an IRA from someone who isn't your spouse, you're generally required to start taking minimum distributions calculated on your life expectancy by Dec. 31 after the year the original account owner died.
If you fast-forward 18 years, that beneficiary is then 40 years old. That year, he is responsible for a distribution of 2.32% of the value of the IRA, Levine said. Charitable remainder trusts allow investors to leave assets to a charitable organization and to a beneficiary. "It's for people who have charitable motivations, a tax minimization motivation and an appetite for the complexity of charitable trusts," she said.
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