The Secure Act 2.0 made big changes to retirement accounts that affect how people handle inherited accounts. If you inherit a retirement account, you need to understand the new rules. Executors and heirs must stay aware of these changes to follow the rules correctly.
New rules for required withdrawals
The Secure Act 2.0 changed the rules for required minimum distributions (RMDs) from inherited accounts. Now, most people who inherit an IRA or 401(k) must take out all the money within 10 years. This rule applies to people who inherit accounts from someone who passes away after December 31, 2019. Beneficiaries must take the money out according to this timeline and cannot leave it in the account indefinitely.
Spouses vs. other beneficiaries
Spouses who inherit retirement accounts have more options than other beneficiaries. A surviving spouse can treat the account as their own and delay withdrawals until reaching age 73. Other beneficiaries must take out all the money within 10 years. Understanding the difference helps beneficiaries make good decisions and avoid penalties.
Tax effects of faster withdrawals
The new withdrawal rules can lead to higher taxes for beneficiaries. Money withdrawn from traditional IRAs and 401(k)s counts as income, so taking it out faster can increase taxes. Beneficiaries should plan carefully to spread out withdrawals and avoid moving into higher tax brackets.
Planning ahead is important
The changes from the Secure Act 2.0 highlight the importance of planning ahead. Executors and beneficiaries should work with financial advisors to follow the rules and manage taxes wisely. Planning early makes the process of handling an inherited account easier and less stressful for everyone involved.
Beneficiaries navigating the new rules for inherited retirement accounts should stay informed and take action. With proper planning and advice, they can manage these accounts effectively and reduce potential challenges.
