Prior to the Secure Act, any such bequests, called “beneficiary IRAs” would permit beneficiaries to take required minimum distributions (RMDs) from these IRAs over their remaining actuarial lifetime – which could be e.g., 80 years. So, for example, bequeathing an IRA with $100,000 remaining in it to a 20-year old grandchild would mean the account could continue to grow tax deferred well into that grandchild’s retirement with only a small fraction of it deemed RMD’s each year. What a valuable “gift”!

However, the Secure Act (its name is certainly a misnomer) will now require such an account to be fully depleted – i.e., declared as taxable income – within 10 years, resulting in a significant increase in that beneficiary’s taxable income, potentially causing a jump in their tax bracket. Even Roth IRAs, although still not taxable, must be similarly distributed within 10 years, presumably so that money is either spent (i.e. resulting in taxable income to someone else) or reinvested in fully taxable accounts. 

Is this now a problem vis-à-vis our legacy planning? The answer is, “Only if we plan to bequeath an IRA.” Instead, if we expect to have “leftover” tax-deferred IRA monies, why not use those monies during our retirement to create a more valuable tax-free inheritance – and which we can still use, if needed, during our retirement?