In this episode of Protecting and Preserving Wealth, we delve into the updated 10-year IRA rule for beneficiaries, finalized by the IRS on July 18, 2024. Under the old Strech IRA rules, beneficiaries could stretch out Required Minimum Distributions (RMDs) over their lifetimes, creating a favorable tax strategy for passing on wealth. However, with the finalization of the SECURE Act regulations, the 10-year rule now applies, requiring beneficiaries to thoroughly distribute inherited IRAs within 10 years, limiting the potential for long-term legacy planning.

The rationale behind this change is to ensure the IRS receives its share of taxable income more quickly, as opposed to waiting decades under the stretch IRA framework. This shift in perspective also means that the IRS no longer views the passing of retirement savings to the next generation as something that should be drawn out over time.

We also explore the nuances of the required beginning date for RMDs, which has been extended to age 73. However, clients are advised to start taking distributions IN the year they turn 73 rather than waiting until the following year to avoid doubling their taxable income from this source. If an IRA owner dies before their RBD, no RMDs are required during the 10-year window. Still, the entire account must be distributed by the end of that period. Conversely, suppose the owner dies after their RBD. In that case, beneficiaries must continue taking RMDs based on their age, and any delays could result in substantial tax hits later on.

We stress the utmost importance of proactive planning, particularly for beneficiaries of large IRAs who may face significant tax burdens if they wait until the 10th year to withdraw funds. A million-dollar IRA, for example, could double in size, leading to a massive taxable distribution. To mitigate this, it’s often beneficial to take distributions gradually.

Finally, we touch on the benefits of Roth IRAs in this context: While Roth IRAs are also subject to the 10-year rule, they are not subject to RMDs during that time, allowing tax-free growth for the entire period. Beneficiaries should wait until the end of the 10 years to maximize tax-free withdrawals.

In conclusion, the new 10-year rule presents challenges, but with careful planning, including the strategic use of Roth IRAs, beneficiaries can still preserve wealth efficiently. For personalized advice, we encourage listeners to reach out to Hosler Wealth Management.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/

Or call them in their Prescott office at (928) 778-7666 or their Scottsdale office at (480) 994-7342.

For more podcast episodes, visit our podcast website at https://hoslerwm.com/protectingwealthpodcast/

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