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Aren't Stretch IRA's Dead?

Under the SECURE Act, the method of inheriting an IRA and then stretching it out over ones lifetime was greatly diminished. Imagine a grandparent with a $100,000 IRA balance who passes that onto a twenty year old grandchild. In the past, that twenty year old could take required minimum distributions (RMD) based on their life expectancy. Since a twenty year old has a long like expectancy, the tax advantages were significant.

Now that same beneficiary would have to take distributions for the next nine years assuming the grandparent had already started their RMD's and would have to have all of the money removed in year ten. This was part of the cost of doing business to raise the age of those RMD's from age 70 1/2 to age 72. There are a couple of exceptions to this rule however:

1) Surviving Spouses,

2) Minor children of the account owner, until age 21, but not grandchildren,

3) Disabled individuals under the strict IRS rules,

4) Chronically ill individuals,

5) Individuals not more than 10 years younger, or older, than the IRA owner.

These five categories are considered eligible designated beneficiaries (EDBs) . These folks can either use the stretch IRA until they no longer qualify as an EDB or die. Like all things related to IRA's, there are a few exceptions to these rules. For most individuals however, it is going to be imperative that they think through their beneficiary designations of their retirement assets and update those over time as life changes. Many account holders fail to review these designations (or make them in the first place), and the mess that can be left behind can be considerable.

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