Life Insurance and the Demise of the Stretch IRA
January 15, 2020 by Steve Gibbs
Since their introduction in 1974, IRAs have become one of the most popular tools for retirement savings. And with an average of one out of three Americans now owning an IRA, they are also among the most significant assets addressed in many estate plans. Although funding retirement remains the primary purpose of an IRA, not everyone intends to use the entire balance during retirement. For these folks, efficiently transferring the remaining wealth in this account to heirs is a vital estate-planning goal.
Historically, the most tax-efficient strategy for managing an inherited retirement account has been to convert the account into a “Stretch IRA,” which lets the beneficiary gradually withdraw the balance over the duration of his or her life expectancy. However, with the advent of the Secure Act, Stretch IRAs may no longer be a viable option.
The gist of the change brought about by the Secure Act is that Beneficiaries will now have to pay the income taxes due for distributions over a shorter period — often at a higher rate and without the benefit of additional growth earned during the longer period of deferral.
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