New Rules for Stretch IRA
I read a recent posting by Sarah Brenner regarding the elimination of the Stretch IRA for non-spousal beneficiaries being replaced by the 10 year rule enacted by the new laws.
Does this apply to both the inherited traditional IRA and the inherited Roth IRA?
Do the beneficiaries have the options to either take out the TIRA in one lump sum and pay the distribution tax all at once or stretch it over 10 years and pay the distribution taxes on the smaller amounts every year and let the balance grow tax free in the TIRA for the remaining years?
Further, since the distribution is not regulated by defining an RMD, I presume that the account holder will have the flexibility to take the amount of the distribution per his needs as long as the account is depleted in 10 years.
My assessment is that the beneficiary will come out ahead by following the latter approach, i.e., if it is permissible to do so.
Appreciate your opinion
Thanks
n2b
Permalink Submitted by Alan - IRA critic on Fri, 2019-12-20 23:21
Yes, it will apply to all inherited retirement plans including employer plans. The only requirement is that the inherited account be drained at the end of 10 years. There is no requirement for any distribution prior to then. Taxes will be due for the year distributions are made. Therefore, waiting until the end will produce a very large tax bill for a pre tax account, but not for a Roth account. Better to wait to take Roth distributions to the end to allow for more taxfree earnings. Generally, it is probably better to spread out pre tax account distributions or take them in otherwise low tax years, but for the Roth it is better to wait since distributions will not be taxable. Basically, this works just like the current 5 year rule, but with 10 years substituted. There are SOME exemptions from these rules such as for surviving spouses, beneficiaries not more than 10 years younger than decedent, disabled beneficiaries, and minors before the age of majority.