Benficiary ira after the tax cut and jobs act 2017

Talk about last minute: Congress passed important retirement legislation just before the holidays that has sent financial planners and tax professionals scrambling, because the law's impact on high-net-worth clients is nearly immediate. The bill has been bouncing around in Congress for several years, and two of its most notable features have been getting most of the attention. One aims to improve coverage of workers in k plans by making it easier for small employers to join together in multiple employer plans, or "open MEPs. But a lesser-noticed provision will have an immediate impact on the estate plans of people with large tax-deferred IRAs or k s. The law eliminates the so-called "stretch" IRA, which allowed nonspouse beneficiaries to draw down inherited tax-deferred accounts over the course of their lifetimes.

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Content:

• New Retirement Law Throws IRA Heirs a Curveball
• Big Tax Law Change Enacted on Your Retirement Accounts
• Explaining the Trump Tax Reform Plan
• Ireland as a tax haven
• Unexpected tax bills for simple trusts after tax reform
• Recent IRS Rulings and Tax Cases Affecting the Estate and Business Succession Planner - Winter 2020
• Recent Tax Developments – 2020 January – The SECURE Act
• Proposed Tax Legislation Would Dramatically Impact Private Wealth Planning

WATCH RELATED VIDEO: Inherited IRA Rules and Tax Strategy

New Retirement Law Throws IRA Heirs a Curveball

Talk about last minute: Congress passed important retirement legislation just before the holidays that has sent financial planners and tax professionals scrambling, because the law's impact on high-net-worth clients is nearly immediate. The bill has been bouncing around in Congress for several years, and two of its most notable features have been getting most of the attention.

One aims to improve coverage of workers in k plans by making it easier for small employers to join together in multiple employer plans, or "open MEPs. But a lesser-noticed provision will have an immediate impact on the estate plans of people with large tax-deferred IRAs or k s.

The law eliminates the so-called "stretch" IRA, which allowed nonspouse beneficiaries to draw down inherited tax-deferred accounts over the course of their lifetimes. Heirs will now be required to draw down the entire account amounts within a year window--a change that will have negative tax and financial-planning consequences in many cases.

The provision has sent high-net-worth households and their planners back to the drawing boards--and quickly, since the law took effect this month.

There are a few exceptions more on that below. But most people expecting to pass along tax-deferred assets will want to review their plans. That could include people with large sources of guaranteed income , including Social Security and pensions, or simply people with very large portfolios that extend beyond their own spending needs.

Under the old stretch rules, inherited IRAs could be drawn down over the lifetime of the heir, based on a schedule tied to his or her own life expectancy. From a policy standpoint, I'd argue this type of use subverts the intent of the tax-favored status of IRAs. The idea is to help individuals fund their retirements, not to pass along tax-favored assets to heirs. So, tightening up the rule makes sense--although Congress should have set a longer deadline for the change to become effective.

The new restrictions apply to retirement plans owned by people who die after Dec. The new rules can create problems for heirs from a tax perspective, notes Ed Slott, an author and retirement expert who is one of the nation's leading authorities on individual retirement accounts.

Along with tax inefficiency, the income could have a variety of other negative consequences for heirs depending on their life stages, such as income-related monthly adjustment amounts IRMAA for Medicare premiums, taxation of Social Security benefits, or even applications for college aid for children. Revisiting Roths One likely impact of the death of the stretch IRA: Roth conversions will become more attractive for people aiming to pass along these assets to heirs rather than using them to fund their own retirements.

Inheritors of Roths still must draw them down after 10 years, but those withdrawals will be less troublesome since they will be tax-free. All that growth is tax-free, and it comes out tax-free," Slott adds. This flexibility means an inherited Roth could be used by heirs in some interesting ways. For example, say your child inherits a Roth at age 60 and retires at She could use those tax-free drawdowns to pay for living expenses while delaying her Social Security filing to age 70 in order to earn delayed retirement credits.

The next few years will be especially attractive for Roth conversions because of current income tax rates , as legislated under the Tax Cuts and Jobs Act of Those rates expire after , and where they will go from there is, of course, an unknown--and of course they could be repealed earlier, if Democrats sweep the elections later this year. Either way, Slott suspects tax rates have nowhere to go but up.

Slott advises doing a series of small conversions over a number of years, filling up to the top of your tax bracket. It's much better not to fund the tax bill from the withdrawn amounts, so make sure you can cover the tax bill. Slott also notes that the Tax Cuts and Jobs Act did away with Roth conversion re-characterizations or "do-overs" , so proceed with caution. Exceptions to the Rule In this article , Slott discusses the complex impact of the new rules on trusts.

He also reviews some types of beneficiaries who are exempt from the stretch IRA clampdown. This group includes surviving spouses, minor children, disabled and chronically ill people, and individuals not more than 10 years younger than the IRA owner. Slott also discusses the option to leave life insurance policies to heirs via trusts and qualified charitable distributions. And Levine notes a couple of other temporary exceptions and reprieves.

For those accounts, the new rules kick in for deaths occurring in and beyond. Review Beneficiaries Levine urges everyone to review beneficiary designations in light of the new rules. Taken together, these changes aim to help people save more and longer, and to retain assets for a longer period of time.

It's a lot to absorb--financial planners and tax professionals are working overtime to figure it all out for their clients. Everyone else should be paying attention, too. Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to WealthManagement. He publishes a weekly newsletter on news and trends in the field at Retirement Revised. The views expressed in this column do not necessarily reflect the views of Morningstar.

Leon LaBrecque, a CPA with Sequoia Financial Group, offers this example in a piece he wrote recently on the death of the stretch for Forbes : "For example, if 'Grandfather A' left his IRA to his year-old granddaughter, she could, based on her life expectancy, take distributions over Sponsor Center.

Big Tax Law Change Enacted on Your Retirement Accounts

The Tax Cuts and Jobs Act made sweeping changes to the tax laws. Brackets have been changed, deductions have been eliminated, and retirement plans have been affected. You may be wondering what the new law means for your IRA. Here are 5 things you need to know: 1.

Explaining the Trump Tax Reform Plan

Ireland has been labelled a tax haven or corporate tax haven in multiple reports, an allegation which the state rejects. Tax Cuts and Jobs Act of "TCJA" , and move to a hybrid "territorial" tax system, [g] removed the need for some of these compromises. Pfizer [h] , or Ireland e. Medtronic [h]. Apple's " CAIA " [i]. Ireland's weakness in attracting corporates from "territorial" tax systems Table 1 , [k] was apparent in its failure to attract material financial services jobs moving due to Brexit e. Ireland's diversification into full tax haven tools [l] e. Ireland has been associated with the term "tax haven" since the U. IRS produced a list on the 12 January Confusing scenarios have emerged, for example:.

Ireland as a tax haven

IRAs represent many things, but primarily they represent a lifetime of earnings that have not yet been taxed or spent. To put these earning to use, the IRA account holder must first pay income tax on the distribution, meaning they have to withdraw more than the amount needed to yield enough after-tax funds. These rules apply whether the IRA is earned or inherited, whether distributions are made during life or at death, and account holders are required to take taxable distributions after age Charitably-inclined IRA account holders, however, have a powerful new option thanks to the Tax Cuts and Jobs Act: they can realize percent of the value of hard-earned savings by making non-taxable Qualified Charitable Distributions, and fulfill charitable bequests through IRA beneficiary designations and thus give more tax-advantaged assets to family.

Unexpected tax bills for simple trusts after tax reform

Although the BBB Bill has not yet been approved by Congress or the President — with likely modifications to come — potential changes to estate taxes, grantor trust and income taxes warrant careful consideration for high-net-worth and high-income individuals. We summarize below the most pertinent aspects of the BBB Bill. Congress initially created the modern estate tax back in Since then, the amount that individuals can pass to their beneficiaries without incurring tax has climbed in fits and starts. However, the Tax Cuts and Jobs Act doubled the BEA for nearly a decade with the legislation including a sunset provision back to the inflation-adjusted figure in As a result, individuals are able and encouraged to structure their estate plans prior to the end of the year to take advantage of the vanishing half of their BEA in the event that the BBB Bill passes and is signed into law.

Recent IRS Rulings and Tax Cases Affecting the Estate and Business Succession Planner - Winter 2020

New guidance helps apply Section m as amended by the tax act. Members may download one copy of our sample forms and templates for your personal use within your organization. Neither members nor non-members may reproduce such samples in any other way e. On Aug. Stricter limits on deducting executive pay were part of the Tax Cuts and Jobs Act, passed at the end of The tax act removed an exemption for commission- and performance-based pay.

Recent Tax Developments – 2020 January – The SECURE Act

Just in time for the holidays, President Trump kept his promise to the American people by signing the Republican tax reform bill. The Tax Cuts and Jobs Act brings major changes to corporate and personal tax rates and deductions. The plan also includes a smaller provision that will expand the benefits of savings plans:.

Proposed Tax Legislation Would Dramatically Impact Private Wealth Planning

RELATED VIDEO: Tax Cuts and Jobs Act of 2017: Effects on Retirement Plans and Other Tax Favored Accounts

Prior to , when a non-spouse beneficiary inherited a traditional retirement account, that beneficiary was eligible for a planning strategy known as a stretch IRA. The benefit of this planning technique is that the non-spouse beneficiary would not have to recognize the entire inheritance as taxable income in the year they inherit the money. In addition, state income tax would deteriorate the inheritance further. For example, in California the state would tax the inheritance at a marginal rate of

It was part of the Further Consolidated Appropriations Act federal spending package. In general, the SECURE Act is intended to expand opportunities for individuals to increase their retirement savings and to simplify the administration of retirement plans. Here are some changes that are most likely to affect individuals, including some that aren't related to retirement savings. The so-called "kiddie tax" rules were designed to prevent wealthy families from shifting unearned income typically from investments to younger generations to lower a family's overall tax bill. These rules can potentially apply until the year an affected young adult reaches age Before the Tax Cuts and Jobs Act TCJA , an affected child's or young adult's unearned income was taxed at the marginal federal income tax rate of the parents if that rate was higher than the rate the child or young adult would otherwise pay. Under the TCJA, for tax years beginning after , an affected child's or young adult's unearned income was taxed at the rates paid by trusts and estates.

A Roth IRA is a tax-advantaged savings account that can help boost your retirement savings. And if you don't follow those rules, you may lose some of those benefits. There are also income limitations restricting who's eligible to contribute. When you make a Roth IRA withdrawal , your money comes out in a specific order.