The financial news is filled with angst over the death of the stretch IRA, something most people never heard of. Take a deep breath, it’s not a crisis. Here is an article that puts the issue into perspective.
YOU MIGHT HAVE heard financial experts claim that IRAs, 401(k) plans and other retirement accounts are terrible assets to bequeath, because the government will end up with more than 80% of the money. This is just a scare tactic by financial advisors trying to drum up business: Unless you’re subject to federal estate taxes and the account’s beneficiaries are in the top income tax bracket, the tax bill will be considerably smaller. Still, your beneficiaries will have to pay income taxes as they draw down the traditional retirement accounts you bequeath.
These accounts have become a less attractive inheritance, because in 2019 Congress killed off the so-called stretch IRA, which allowed beneficiaries to draw down these accounts slowly over their lifetime. Instead, beneficiaries now typically have to empty retirement accounts within 10 years.
Under the new rules, spouses who inherit a retirement account can transfer the money into their own IRA, which allows them to postpone taking distributions until age 72. Meanwhile, almost everybody else will want to move the money into an inherited IRA, which they’ll then have to empty within 10 years. Spouses who are under age 59½ and need income right away might also choose this route, because it will allow them to avoid the 10% tax penalty on early withdrawals.
READ THE FULL STORY HERE. Source: Inherited IRAs – HumbleDollar