Bid adieu to stretch IRAs! A new tax law widely expected to become law by the end of 2019 will kill this strategy for passing on your IRAs to the next generation while minimizing the amount that goes to Uncle Sam. Adoption of the legislation is not sure, but it is highly likely, making it wise to plan now for the demise of the stretch technique.
If you previously planned to enable your IRA beneficiaries — this does not include your spouse — to inherit your IRA and stretch out distributions over their lifetime, your plan for minimizing the tax impact to your heirs is likely to become obsolete on January 1, 2020.
To be clear, if you die after 2019 and your children are your IRA beneficiaries, you'll need to rethink your plan for minimizing their tax payments. The new law will require your IRA to be distributed by your heirs over 10 years instead of their actuarial life expectancy.
If you previously set up a conduit trust for your IRA beneficiaries, it will be important to amend your plan, or your beneficiaries may face an unexpected tax bill and sudden cash drain.
Exceptions are carved out in the new law for the disabled and minors as well as surviving spouses. However, the new tax bill will make it wise for more individuals to convert to a Roth IRA and employ other tax planning strategies that require individual advice to minimize your taxes in passing IRA accounts to the next generation.