Ever worry about outliving your money in retirement? You’re not alone.
In fact, it’s the number-one fear people have as they transition into retirement.1 And with good reason. With life expectancy on the rise, we are depending on policy-makers to step up and fix our “retirement epidemic.”
But by the looks of the newly signed SECURE Act, these policy-makers seem to be doing more harm than good.
Don’t get me wrong. The new bill does offer some positive changes—most notably the removal of IRA contribution age limits, an increased required minimum distribution age, and incentives for small business-sponsored retirement plans.
But these positives are overshadowed by one major update that will siphon money from American retirement accounts nationwide—a change many have coined “The Death of the Stretch IRA.”
What Is “The Death Of The Stretch IRA”?
In the past, inherited retirement account distributions could be stretched over the recipient’s lifetime to minimize their tax burden. Not only did this allow money to continue growing for decades in tax-friendly accounts, but the small annual distributions also had a minimal effect on the beneficiary’s income tax bracket.
Under the SECURE Act, these days are over.
Now, inherited IRA recipients are required to withdraw all the money from their account—and pay taxes on it—within a 10-year period. (Note: Surviving spouses and minor children are exempt from this rule.)
Why This May Hurt Your Accounts
This won’t have as much of an effect on those who inherit smaller accounts. But for those who inherit larger accounts, taxes will have to be paid over a shorter amount of time, which means a higher tax bill.
To make matters worse, if beneficiaries inherit these accounts during their prime earning years—which is often the case—they will be hit even harder with income taxes.
In other words, thanks to the SECURE Act, more of your inheritance will go to the government, and less will go to you. The same goes for your children and beneficiaries. If you’re not careful, the legacy you’ve worked hard to build for your loved ones will have the government’s hands all over it.
How To Protect Yourself
To avoid having your loved ones pay unnecessary taxes, Bridgelight Financial Advisors can guide you toward tax-efficient solutions that fit your life and your goals, such as Roth conversions, withdrawing from taxable accounts first, and reviewing your estate plan.
If you’re concerned about how the SECURE Act will affect your retirement accounts, we’re here to help. We at Bridgelight Financial Advisors have solutions to offset the impact of this new taxation. We can also help structure your investments so your legacy isn’t eaten away by taxes before making it into the hands of your loved ones. To learn more, call (203) 795-7080, email Advice@BridgelightAdvisors.com, or schedule an appointment online!
About Bill
Bill Leavitt is the president of Bridgelight Financial Advisors, an independent, privately owned financial advisory and financial planning firm. He specializes in working with pre-retirees, retirees, professionals, and women investors, helping them navigate a complicated and ever-changing investment landscape. With over 25 years of experience, Bill serves his clients using his own unique financial planning model, The Wealth Focus™ Process, where he helps clients develop their customized long-term wealth strategy in four comprehensive steps. A Connecticut native, Bill resides in southern Connecticut with his wife, Laura, and their three daughters. To learn more about Bill, connect with him on LinkedIn.