What then is the downside to this?
Effect of the modification
The HR 1994 bill was passed by Congress on March 29 to speed up IRA distributions and taxes on inherited IRAs. This law would force the beneficiaries of such accounts into a higher tax bracket by accelerating tax collections. Prior to this bill, stretch periods could last indefinitely but by reason of this bill, the period has been limited to 10 years, after which the inherited IRA would be depleted and all taxes which the IRA is subject to will have to be paid in full. This proposed legislation would see to it that higher taxes are paid as compared to the original Stretch IRA, and that the beneficiaries would be prevented from having their ever-growing funds tax-deferred. This consequently would reduce the compounding effect of the interest which such funds would provide.
Do you still desire to significantly cut down on estate taxes?
Despite the new regulations put in place to check the loopholes of the aforementioned estate planning system, there are other alternatives permitted by the proposed legislation, through which IRA account holders can pass on their IRAs to beneficiaries completely tax-free. As an estate planning lawyer would tell you, one of these alternatives is by creating a charitable remainder trust. This type of trust allows investors and IRA holders to transfer assets into the ownership of a beneficiary, after which the assets are then passed on to a charitable organization. The benefit of this alternative estate planning tool is that it allows the recipient to enjoy the proceeds from the assets before handing what’s left of the estate. Another alternative to transferring assets to beneficiaries tax-free is by entering into a Life insurance policy.
Contact an estate planning lawyer
The purpose for the new stretch IRA legislation is to cut down on the stretch period, thus reducing the possibilities of the wealthy taking advantage of the retirement system and going completely tax-free. You may not fall into this category of the upper class and may desire to have less taxes to pay when leaving assets for your beneficiaries. Estate planning is an important aspect of everyone’s life, and as almost every individual has one or more assets to their name, there is need to be cautious while leaving such assets for your loved ones in order to ensure they enjoy maximally from those assets after all taxes are paid. As have been said, there are alternative measures beside the Stretch IRA with which estate taxes can be significantly cut-down or avoided. Estate planning lawyers are lawyers specialized in the laws and regulations surrounding estate planning, and it’s in your best interests to contact the best estate planning lawyer near you who is well-versed in creating trusts, insurance policies and other estate planning documents which would help achieve your estate planning goals.