Many people name their children as the beneficiaries of their IRA accounts.
One of the advantages for your child in receiving an inherited IRA from
you “used to be” that your child only had to withdraw a small
percentage of the IRA account each year based upon his or her life expectancy.
This requirement of only having to withdraw a minimum amount of money each
year from the inherited IRA “used to be” advantageous to your
child because it allowed him or her to avoid a large tax bill due to a
large IRA withdrawal all in one year and allowed the money left in the
inherited IRA to continue to grow tax free.
I say “used to be” because the SECURE Act changes this rule
for most children who inherit an IRA after December 31, 2019. Under the
SECURE Act, most beneficiaries who inherit an IRA account will now have
to withdraw all the money in the inherited IRA within 10 years of receiving
the inherited IRA.
This change in the inherited IRA mandatory withdrawal rules could significantly
change the way that many parents envisioned their IRA accounts being used
by their children.
If you have an IRA account that you are planning to leave to a child, you
may want to talk with your estate planning attorney about what impact
the SECURE Act may have on your estate plan.