Two steps to take now under SECURE Act

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that came into effect from December 2019 onwards had a deep impact on how to plan to use IRAs to pass on to heirs and designated beneficiaries.

In light of the radical changes, it is best to carry out the below two tasks to secure your position in the context of IRAs

Task#1 – See if you can name your spouse as a beneficiary 

Under the previous regime, it was common to name someone way younger as a beneficiary (children) in case you needed to pass it to the next generation. Hence it was not uncommon for many people to name their grandchildren or even great-grandchildren as beneficiaries. This step greatly improved the chances of staggered distributions that come with inherited traditional or Roth IRA assets.

However, the new update has forced many plan participants to re-think their investment strategy. Experts feel that naming your spouse would be a good idea instead of another family member as a beneficiary. This way, the spouse can continue tax-favored appreciation minus the ten-year schedule fixed for withdrawals. Agreed, they will still have to face RMDs from the account as per their specific life expectancy. But experts concur that such withdrawals will be far less than the withdrawals expected under a revised 10-year plan.

Task#2 – Shift from a traditional IRA to a Roth IRA

Under the traditional IRA, the delayed RMD will see potential growth in tax liability upon withdrawal, as the account balances too would swell. If you have been under a traditional IRA plan, then the time is right to make the switch from this plan to a Roth IRA. With this switch, investors can move money out of a traditional IRA and pay applicable taxes on the investment at the standard federal and state rates. Now once they have made the jump to Roth, the money there will continue growing tax-free.

To sign off

If you have an IRA such as a self-directed retirement account, then it makes complete sense to carry out these changes. The roll-out of the SECURE Act has made these updates a sensible move for the common individual investor from a retirement and estate planning perspective.