Legal Alert: Changes to Affect Traditional and Roth IRA Beneficiaries as of January 1, 2020

As of January 1, 2020, significant changes were made to Individual Retirement Accounts and Roth IRAs. The new limits were put in place by Congress as part of their year-end spending package. In the past, the beneficiary of a traditional or Roth IRA could withdraw throughout their lifetime, potentially getting decades of income-tax-free inheritance. This is called a Stretch IRA because of the length of time one can draw from it. Now, with the changes in place, beneficiaries are required to withdraw all assets within 10 years. An heir could do this over time throughout the 10 years, or wait until the end of the 10 years and take out one sum, maximizing the tax-free growth.

The law affects IRA owners whose death will take place after December 31, 2019. Any IRAs inherited before that date are not affected by the changes.

Members of Congress who supported the change felt that tax-favored retirement should be used by the owner of the IRA or their spouse and not for wealth succession. With the new limits in place, Stretch IRAs are estimated to raise $15.7 billion in tax revenue from 2019-2029, according to the Joint Committee on Taxation.

There are exceptions to the new rule, however. IRA beneficiaries still covered by the old rules include surviving spouses, the disabled or chronically ill, or persons who are no more than 10 years younger than the IRA owner. There are also exceptions for children of the IRA owner who are still minors.

If you have questions about the information in this Legal Alert, please contact your Rothberg attorney to see if we can assist you.

Dennis F. Dykhuizen, Partner｜[email protected]

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