Affluent families across the United States often enjoy a tax strategy that uses inherited IRAs. A specified beneficiary can inherit an IRA under the current rules and not be required to pay taxes on the IRA as long as the money stays inside it. The money can continue to grow tax-deferred throughout the person's lifetime, and only a minimum of taxes will need to be paid on withdrawals.
However, these benefits could soon end. The Senate Committee on Finance approved a measure that could dismantle the ability of families to create "Stretch IRAs" for beneficiaries who aren't spouses. This would put trillions of dollars worth of family money across the United States in a position to be taxed by the government.
It is still unknown if the measure will be successfully approved, but according to one commentator, the tax implications of this change will be big. The proposal, if incorporated into a bill, would be a part of the Retirement Enhancement and Savings Act. The new law would require any heir of an IRA or other qualifying retirement accounts to send a check to the IRS for all taxes owed within five years of the original IRA owner's death.
There are more specifics to this proposed measure, however, at this time it is not known for sure whether it will be approved and implemented. That said, with the incoming changes represented by a new government and new presidential administration, there could be many new developments in the field of estate planning. As such, Tennessee residents will want to be in close contact with their estate planning lawyers during the next couple of years to ensure that their estate plans are updated to reflect any new changes to the law.
Source: post-gazette.com, "Congress could put an end to inherited IRAs for non-spousal beneficiaries," Dec. 19, 2016