The SECURE Act (The Setting Every Community Up for Retirement Enhancement Act of 2019,) a law aimed at improving people’s retirement security, was signed into law at the end of 2019 and has tax implications for those inheriting money from IRAs and 401k accounts.
Before, those inheriting such funds could take distributions over their lifetime. But that timeframe has now been reduced to 10 years, meaning that if you’re inheriting an IRA or a 401(k) from someone who passed away on or after January 1, 2020, you’ll need to withdraw those assets within 10 years.
They’re taxed as ordinary income and if you’re still working, the income from the retirement account distributions could bounce you into a higher tax bracket.
It also means that if you were counting on letting such inherited funds sit and grow for your own retirement, you may have to reevaluate your long-term financial plan.
If you know you’re inheriting an IRA or 401(k) from parents or other relatives, talk with them and encourage them to revisit their estate plan with the help of a professional – a lawyer or CPA, for example –to see whether there are better strategies for distributing money to you and to other heirs.
All that said, there are exceptions to the rule, and retirement assets left to a spouse, minor child, a disabled person, or those who are less than a decade younger than the original fund owner still can stretch distributions longer than 10 years.
Self-care, Protection After Spouse’s Death
After the death of a spouse, you’re overwhelmed by grief and the long list of tasks associated with funeral arrangements, notifying life insurance companies, and meeting with lawyers to settle the estate.
The last thing you probably want to think about is yourself.
But you must.
After all, it’s likely that your spouse was the person you relied on not only to help you through your golden years, but also to make medical and financial decisions and carry out your end-of-life medical wishes.
All those things a late husband or wife were to do for you need to be transferred to a trusted child or to another relative or friend.
You want to be certain that you’re protected and cared for, so having someone to step it is particularly important if you have a sudden accident or illness and can’t take care of yourself or your affairs for a time.
Here are three things to do:
- Papers. Gather all your legal documents – will, medical directives, names of doctors, lawyers, and so forth – in a file and tell someone you trust where it is. Original wills and financial papers may be stored in a safe deposit box, but you can keep duplicates at home.
- Information sharing. Check with your doctors, credit card companies, banks, insurance companies, and so forth, to find out how you can grant permission for them to share information with the person you’ve designated to help you in a crisis. You may have to sign a form to grant such permissions. Be cautious about who you name and be sure you trust them to not exploit you financially.
- Advance directives. Be sure to update your living will, outlining the kind of medical care you want and don’t want. Also update your durable power of attorney for healthcare to name the person you’d like to make medical choices on your behalf if you’re incapacitated.