Recently, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019) imposed a 10-year limit on distributions from an inherited IRA. A beneficiary who is not the IRA owner’s spouse is now required to withdraw all funds from the inherited IRA within a 10-year period. This is referred to as eliminating the “stretch IRA”. There are a few notable exceptions for minors and disabled beneficiaries. Requiring a child or non-spouse beneficiary to accept and pay income tax within ten years can be burdensome.
Prior to this change in law, workers invested in retirement accounts and then took distributions until death. The remaining balance was then available to the IRA owner’s heirs to continue to take distributions taxed as ordinary income until the IRA was depleted. Any gains or growth within the IRA are also taxed at your current income rate when the distribution is made.
There is a way to extend IRA distribution to an heir beyond the 10-year limit. Creating a Charitable Remainder Trust (CRT) provides for distributions of a fixed percentage or fixed amount to one or more beneficiaries for life or a term of fewer than 20 years. The remainder of the assets in the trust will then be paid to designated charities at the end of the trust term.
Implementing a charitable remainder trust can stretch a large IRA and allow the recipient to benefit from the tax advantages. It can also be effective in protecting the IRA assets from a beneficiary’s creditors. A CRT gives you more control on how your heirs inherit assets from a large IRA.
If your estate contains a large IRA, contact the knowledgeable estate planning attorneys at Stouffer Legal in the Greater Baltimore area to discuss how including a charitable remainder trust in your comprehensive estate plan will impact the tax implications faced by your heirs. We can use the balance in your IRA to create a financial projection that illustrates the impact of using a CRT. This will help you make a more educated decision on how to proceed. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com
