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4 Estate Strategies for Affluent Retirees Under the SECURE Act

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30.12.2019

In the last decade, I have watched the federal estate exemption bounce between $650,000 and $11.4 million. The easiest way to explain the exemption is as a “coupon” that is handed in at death to “pay” for all the things you have accumulated throughout your life. As long as those things are worth less than $11.4 million (2019 limit), you don’t have to pay federal estate taxes. If you’re married, double that number.

The Tax Policy Center estimates that nationwide only 1,900 estates were taxable in 2018, which is less than 0.1% of the number of people who died that year. With so few people worried about having that obligation, estate planning has shifted from trying to avoid the federal estate tax to how to minimize headaches, capital gains taxes and income taxes for the next generation.

The SECURE Act has added a significant speed bump when it comes to minimizing income taxes for non-spouse beneficiaries. But there are ways to smooth that bump out a bit.

With a few uncommon exceptions (including the chronically ill and disabled), non-spouse IRA beneficiaries of people dying after Jan. 1, 2020, will no longer be able to stretch distributions over their life expectancy. This is being referred to as “the death of the stretch,” and it can have some big tax consequences.

In the United States, life expectancy is just shy of 80. If a 30-year-old were to inherit an IRA worth $2 million, the first-year distribution under the old rules would be $37,524. Under the new rules, the whole amount would have to be distributed within 10 years of the year following the year of death. If you split that evenly, that’s $200,000 per year. The tax ramifications of this are significant and explain the motivation of the legislation’s authors: More tax revenue........

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