Alternate Strategies for Stretch IRA
Over the years, we lauded the stretch IRA as one of our favorite tax-saving moves, to help mitigate the tax bill when nonspouse heirs inherit retirement accounts and build wealth for another generation. But all good things come to an end--starting this year, nonspouse heirs who inherit IRAs are out of luck when it comes to using the stretch. The SECURE Act, signed into law in late 2019, mandates that many nonspouse heirs who receive inherited retirement accounts must empty the accounts within a decade.
The stretch strategy, which gave nonspouse heirs the opportunity to take out inherited IRA distributions over their own life expectancies, was targeted by Congress as a loophole used by the wealthy. In reality, the strategy was also used by those people who just diligently saved in retirement accounts for years and wanted to pass on as much of the legacy as possible to their progeny.
Albeit not a perfect strategy, spreading out the tax bill through the stretched distributions kept heirs' tax tabs in check and allowed more of the money to grow for a longer time. The younger the beneficiary, the more advantageous the stretch could be.
After wiping away the tears over the stretch IRA's demise, it's time to get down to brass tacks and search for alternative options to the stretch. Don't assume your only option is to accept Uncle Sam's forced accelerated payout schedule. There are still moves that IRA owners can make to help ease the transfer of their legacy to their chosen beneficiaries and save some money from the taxman.
None of the alternatives are quite as cheap--read "free"--as the stretch strategy was, but we'll
