Estate Planning

Inherited IRA Rules and the SECURE Act

By Dean Barber

November 3, 2022

Inherited IRA Rules and the SECURE Act

Key Points – Inherited IRA Rules and the SECURE Act

  • How the SECURE Act Changed the Rules for Inherited IRAs
  • Your Required Beginning Date for RMDs Is a Big Deal
  • The Three Different Categories of Beneficiaries
  • Some Welcomed News from the IRS Regarding a Missed RMD Penalty Waiver
  • 21 Minutes to Read | 38 Minutes to Listen

The rules of inherited IRAs are extremely difficult to understand due to the SECURE Act, yet they must be understood. Dean Barber and Bud Kasper review the inherited IRA rules and explain how they can affect different beneficiaries.

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Show Resources:

Find links to the resources Dean and Bud mentioned on this episode below.

Dean Is Back in the Captain’s Chair

Dean Barber: Thanks so much to those who join us on America’s Wealth Management Show. I’m your host, Dean Barber, along with Bud Kasper. What do you say, Bud?

Bud Kasper: Welcome back.

Dean Barber: It’s good to be back.

Bud Kasper: No doubt.

Dean Barber: I had a little bit of a break there. I took some time to go study with our good friend, Ed Slott, for a week in Las Vegas. A day in Las Vegas is enough for me, let alone a week.

Bud Kasper: Yeah, no doubt. It’s so funny that all places for a study forum to be, Ed would pick Las Vegas. It’s almost counterintuitive.

Dean Barber: The restaurants and company were good and the education was great. Then, I did my annual hunting trip with some friends of mine last week. But now I’m back in the saddle and ready to work it out through the end of the year.

Bud Kasper: How fortuitous that you’re doing this when the Federal Reserve is going to be making decisions and the like.

Bad Times for the Bond Aggregate

Dean Barber: Well, it never stops. Today, we’re going to be talking about something that can take your money away faster than a bear market.

Bud Kasper: Ouch.

Dean Barber: It’s a bond market.

Bud Kasper: That’s a true statement.

Dean Barber: This is a little bit off topic because we’re going to be talking about inherited IRAs and all the crazy rules they have. But I was looking last week at how the bond aggregate has fallen more than the S&P 500 over a trailing 12-month period.

Bud Kasper: I know that was about 15.9%.

Dean Barber: Yeah. In my 35 years in this industry, I can’t think of one time where you could go a trailing 12-month period where the bond aggregate is down more than the S&P 500.

A Double-Edged Sword

Bud Kasper: No. And I think it’s very important for people to understand that. This is what I refer to as a double-edged sword. You’re getting cut on the bond side, which is supposed to represent the safety inside a portfolio. And you’re getting cut on the stock side because of the drop that we’re experiencing in the stock market. All this is resting in the hands of the Federal Reserve, as they try to work their way back out of the issues affiliated with interest rates.

Stay Tuned for Dean’s Big Secret

Dean Barber: Well, the silver lining here is that I can tell you the day that the stock market is going to start going back up for real. And I can tell you the day that the bonds are going to recover for real.

Bud Kasper: OK. Please tell us.

Dean Barber: But I’m not going to tell you right now. People need to stick around because I’ll do that at the very end of our discussion.

Bud Kasper: All right, folks. We’re all on pins and needles.

Shifting Gears to Inherited IRAs

Dean Barber: Let’s jump into this whole scenario now with inherited IRAs. When we talk about an inherited IRA, we’re talking about you as a beneficiary or perhaps it’s your beneficiaries. When money comes out of an IRA and has a beneficiary on that account, what are the rules for that beneficiary?

Your Required Beginning Date for RMDs

Before we get to that, we need to understand that every person who has an IRA, 401(k), or 403(b)—any of those types of retirement plans— they have something called a Required Minimum Distribution. That is the amount of money that needs to come out of the account, starting on your required beginning date. It’s important that we understand what the required beginning date is. The required beginning date is April 1 of the year following the year that you turned age 72. So, someone could be 73 before they need to take a Required Minimum Distribution.

Let’s say that somebody turned 72 on January 1, 2022. Well, they’re not required to take their first RMD until April 1, 2023, at which time they would be 73 and three months. So, it’s kind of convoluted. There are different rules when people inherit IRAs. If somebody dies and you inherit the IRA from them before their required beginning date versus if they die after their required beginning date. They are totally different set of rules for each individual.

How the SECURE Act Changed the Rules of Inherited IRAs

Bud Kasper: Before the SECURE Act, I used to graph out for people how much money their children were going to be able to save because inherited IRAs would be based upon their life expectancy. It was a beautiful thing. But of course, Congress can’t leave a beautiful thing alone. They passed the SECURE Act 2019 and it went into effect in 2020 to change the inherited IRA rules.

Dean Barber: That was all in the SECURE Act. There has been a lack of clarity around what the inherited IRA rules are for the beneficiary. When it first came out, basically it said that the beneficiary of an IRA needs to get all the money out by the end of the 10th year following the year of death. That was basically what it said. So, people didn’t really know how to interpret that.

Clarification from the IRS

The IRS finally has issued more guidance on what that is. Certain people will have to take an RMD each year and then others won’t. They just need to have it out by the end of the 10th year. And the important thing that you need to understand is that if you mess this up, this is on you. If you mess it up, there is a 50% penalty to those people who don’t get it right.

Bud Kasper: Why would Congress do that?

Dean Barber: They need money.

Bud Kasper: There are other ways of getting it without pulling on your chain so hard that you can’t stand up anymore. And that’s kind of what this is to me.

The Inherited IRA Rules Following the SECURE Act Are Far from Simple

Dean Barber: It’s super confusing. If you have an IRA or 401(k), it’s critical that you understand what’s going to happen to that IRA or that 401(k) when you pass on and that goes to either your spouse or to the next generation. If you’re anticipating that you will inherit an IRA because you have an elderly parent, you need to understand what the rules are as it comes out.

Now, we can get to all that for you. We can sit down and look at each individual situation. This is critical because if you mess this up, there are no do overs. You can’t say, “Oh, I didn’t mean to do it that way.” You need to get it right. It’s just one of the things you must get right when it comes to your overall financial plan.

Reviewing Inherited IRAs with America’s IRA Expert

Like I said earlier, Bud and I have studied with America’s IRA expert, Ed Slott, going all the way back to 2005. I was just at Ed Slott’s Elite IRA Advisory GroupSM workshop in Las Vegas. Bud couldn’t go to it because his daughter was not doing so well, so he had to stay back and take care of her.

One of the things that we went through and talked a lot about were inherited IRAs because there are so many landmines. Inherited IRAs involve so many things that you won’t see coming. And if you mess up inherited IRA, you can be subject to a 50% penalty. This is a huge deal.

An RMD Penalty Waiver

But on October 7, the IRS issued Notice 2022-53. That notice waived the 50% penalty on missed 2021 and 2022 inherited retirement account required minimum distributions that are within the 10-year payout rule. Does that make sense?

Bud Kasper: Kind of.

The Three Beneficiaries

Dean Barber: So, which inherited IRAs fall within the 10-year payout rule? This is where it gets kind of sticky. The SECURE Act outlined these three crazy types of beneficiaries. You can be a non-designated beneficiary, a non-eligible designated beneficiary, or an eligible designated beneficiary. Which type of beneficiary you are is going to dictate the rules for you as an inheritor of an IRA of how you need to get your money out.

Bud Kasper: Right. Unless you want to take it all out and pay the tax.

Dean Barber: There are some people that’ll do that, but obviously that’s probably not the smartest decision.

Bud Kasper: No.

Non-Designated Beneficiary

Dean Barber: Let’s start with the non-designated beneficiary. A non-designated beneficiary is an estate, charity, or non-qualifying trust. So, a trust that is a non-look through trust. If you have a trust as the beneficiary of your IRA, you must make sure that it’s a qualifying trust. Otherwise, it blows up the whole IRA and it’s all going to become taxable in a very short time.

Bud Kasper: That means that you need to see into the language of the trust to keep yourself in an eligible format.

Dean Barber: There needs to be what are called either a non-eligible designated beneficiary or an eligible designated beneficiary or a combination of those two within the language of the trust. And they need to be clearly identifiable. The trust can’t have any language in it which leaves any portion of the trust to a charity.

Non-Qualifying Trusts

For example, if I have a trust that says my kids are going to get 90% and it’s going to be split evenly between my five kids and then 10% is going to go to charity, it’s suddenly a non-qualifying trust because a portion of the trust is designated to go to a non-designated beneficiary or charity. That disqualifies that trust from being an eligible designated beneficiary.

Bud Kasper: That just raised a question in my mind that I don’t have an answer for. Is it possible for heirs to use QCDs prior to receiving their inheritance?

Dean Barber: I don’t know, but we could obviously get a hold of Ed Slott and find out. But I’ve seen a lot of trusts. We’ve assisted a lot of people in doing trusts over the years where we have charitable individuals who want to leave a portion of their estate to charity and it’s written into the language of their trust document. Ever since the SECURE Act came out in 2019, those trusts are now considered a non-qualifying trust because they have a designated beneficiary within there that is a charity. Even if it’s 1% of it, it still disqualifies the whole thing.

Planning Is Pivotal with Inherited IRAs

Bud Kasper: That’s critical information. You need to plan around this. Dean, how many people do you know or that you and I have talked to that don’t understand what the language needs to be to get it to the next generation?

Dean Barber: Most people don’t. If you don’t understand the inherited IRA rules and you’ve got an attorney that’s not an IRA expert, you need to learn those rules. If you don’t, your attorney will just be drafting a trust for you and doing what you say to do. So, if you name your trust as a beneficiary but part of that trust is going to a charity, you’ve just disqualified the entire trust to inherit the IRA and have those either non-eligible designated beneficiaries or eligible designated beneficiaries receive the money as if they were a natural person. It’s so convoluted.

Non-Eligible Designated Beneficiaries

So, what is the definition of a non-eligible designated beneficiary? A non-eligible designated beneficiary is defined by the IRS as all designated beneficiaries who do not qualify as an eligible designated beneficiary.

Bud Kasper: OK. That just eliminated that.

Eligible Designated Beneficiaries

Dean Barber: So, if you want to know what a non-eligible designated beneficiary is, you need to first know what an eligible designated beneficiary is. Eligible designated beneficiaries include surviving spouses, minor children under 21 but not grandchildren, disabled individuals under strict IRS rules, chronically ill individuals, or individuals who are not more than 10 years younger than the IRA owner.

Bud Kasper: That doesn’t mean that they can’t receive a distribution. It just means that they need to get it out in 10 years.

Dean Barber: That’s right. The non-eligible designated beneficiaries must follow the 10-year rule. All the money must come out within 10 years.

Bud Kasper: But it can all come out in the first year or the 10th year or anything in between.

Another Reason Why the Required Beginning Date Is So Important

Dean Barber: It depends. It depends on how old the person who died that owned the IRA initially was. If the IRA owner passes away prior to their required beginning date, the non-eligible designated beneficiary can take money out at will. But it all must be emptied by the end of the 10th year following the year of death. If the IRA owner passes away after their required beginning date, then the non-eligible designated beneficiary must take annual required minimum distributions and make sure that the account is completely emptied by the end of the 10th year following the year of death.

Bud Kasper: So, it must be annual until eliminated?

Dean Barber: If the IRA owner dies after their required beginning date. Let’s think about the required beginning date. The required beginning date is April 1 following the year that the IRA owner turned 72. Some people might get confused and think, “Well, I’m 72 this year, so I started taking distributions from my IRA.” Those are not required yet. You haven’t reached your required beginning date. It’s April 1 of the year following the year the individual that owns the IRA turns 72. That’s going to dictate that.

So, this IRS notice 2022-53 addresses the individuals who inherited money from an IRA owner that died after their required beginning date. They’re now saying that those individuals should have taken an RMD in 2021 and should take an RMD in 2022.

It Appears Those Annual RMDs Will Resume in 2023, But It’s Still Unclear

However, the IRS felt generous on October 7 when they issued this guidance. They realized that they weren’t clear enough on what those rules were. So, if you missed your 2021 or 2022 RMD, it’s OK. They’re going to waive that 50% penalty.

While it’s not clear yet, Ed Slott believes that means that those inherited IRA owners won’t need to go back and make RMDs for 2021 and 2022. They will need to begin making those annual RMDs in 2023.

Bud and I have been studying with Ed for almost 18 years. And at every conference that we go to, there’s something else comes out. The bottom line is that most people have no idea what these inherited IRA rules are. That’s why I say there’s a faster way to lose your money than a bear market. It’s these 50% penalties when you mess up the requirement of distributions from inherited IRAs. Not only is it critical for you to understand these rules, but it’s going to be critical for the people that will inherit your IRA to understand these rules.

The Purpose of America’s Wealth Management Show

Along with studying with Ed for the past 18 years, Bud and I have teamed up to make America’s Wealth Management Show the longest-running educational and financial planning show in Kansas City. We’ve been doing America’s Wealth Management Show for nearly 20 years.

Unlike a lot of the financial radio programs, we’re not here to sell you financial products. In fact, we have zero financial products to sell you. Our CERTIFIED FINANCIAL PLANNER™ Professionals are paid salaries to be fiduciaries and do what is in your best interest.

One of the things that we’re talking about today is inherited IRAs and how confusing the SECURE Act has become after it passed through Congress in 2019. There are major implications for individuals who either have an IRA or will inherit an IRA. This also goes for 401(k)s and 403(b)s and all the rules that surround that 7702 rule. So, there are all kinds of complicated issues, and the SECURE Act made them even more complicated.

A Quick Review of What Dean and Bud Have Discussed About Inherited IRA Rules

Before I tell a story of how this can get confusing for the IRA owner and the beneficiary, I want to review what Bud and I have discussed on inherited IRA rules.

First, the SECURE Act created three types of beneficiaries—a non-designated beneficiary, non-eligible designated beneficiary, and eligible designated beneficiary. They’re all complicated. All three have different rules on how you get the money out.

An Inherited IRA Case Study

So, here’s the story about inherited IRAs that I want to tell. We discussed it during our training with Ed Slott a couple of weeks ago. We have Grandma Edna, who is dying and has two IRAs. The question is, what are the RMD implications for her granddaughter, Ava? In this case, Edna is going to pass away and Ava is going to be the beneficiary of the account. We need to determine whether Ava is a non-eligible designated beneficiary or an eligible designated beneficiary.

Here are the facts. Edna was born in 1940. She died in 2021 at 81. In 2011, Edna inherited an IRA from her brother, Jack, who was two years younger than her.

He was born in 1942. Jack was 69 when he died, which means that he died before his required beginning date. In 2012, Edna began taking stretch IRA distributions from the inherited IRA based on her age 72 in 2012.

What Are Ava’s RMD Requirements?

In 2021, Edna died and Ava inherited the IRA. When Edna died in 2021, she left her own IRA and the IRA that she inherited from Jack to Ava. Ava was 17 in 2021 when she inherited the IRAs. So, the question is, what are Ava’s RMD requirements? And what do you think the chances are that Ava understands the inherited IRA RMD rules?

Bud Kasper: Zero.

Dean Barber: OK. If Ava messes up the RMD rules, she’s subject to what?

Bud Kasper: Penalty and taxes.

Ava Is a Non-Eligible Designated Beneficiary

Dean Barber: A 50% excise tax. So, since Ava was 17 when she inherited the IRAs, she is not an eligible designated beneficiary because she’s not the child of the deceased IRA owner. She’s the grandchild. As a non-eligible designated beneficiary, she is subject to the 10-year rule and must empty this inherited IRA by the end of 2031. That’s the 10th year after her grandma’s death.

However, since Edna died after her required beginning date, then under the IRS proposed regulations, Ava must take RMDs in years one through nine based on Ava’s age, 18, the year after Edna’s death in 2022. Since Edna died after the required beginning date, Ava is now a non-eligible designated beneficiary and subject to the 10-year rule. And since Edna died after the required beginning date on the inherited IRA, Ava needs to take out her RMDs each year.

Different Rules for a Different Inherited IRA

Now, what about the IRA that Ava inherited from Edna, which Edna inherited from Jack? In this case, Ava needs to follow another set of inherited IRA rules because she is now a successor beneficiary rather than an eligible or non-eligible designated beneficiary.

In this case, Ava is subject to the 10-year rule, but she is subject to a different set of RMDs and can’t use her own life expectancy. Ava must continue to use Edna’s remaining RMD schedule beginning in 2022. This is kind of like the old step-into-the-shoes-of-the-first owner-of-the-IRA rule.

So, Ava has two IRAs that she’s inherited from Edna with totally different RMD amounts coming from each one. How easy would it be for Ava to mess that up?

Bud Kasper: I’d say the likelihood of her messing it up is probably very high.

Seeking Professional Guidance to Understand These Inherited IRA Rules

Dean Barber: I want people to truly understand how critical it is that you seek out professional advice on inherited IRAs. Most people in our industry do not understand these rules. They’re going to rely on the CPA. Well, what does the CPA typically do? The CPA lives in a compliance world, which means that they’re going to report on what happened last year. They’re not giving proactive advice and looking forward. They’re basically saying, “Oh, you had this account? You didn’t do it right. Here’s your penalty.”

It’s like toothpaste. Once it comes out of the tube, you can’t get it back in. The whole thing with inherited IRAs is so convoluted. So, if you have an IRA and you have beneficiaries of the IRA, not only do you need to understand the inherited IRA rules that those beneficiaries need to follow, you need to educate those beneficiaries on the rules that they’re going to need to follow when they inherit the IRA.

The best way to do this is to sit down with your CFP® Professional and make sure that you understand the inherited IRA rules. Then, have a family meeting and have your CFP® Professional—somebody that has expertise in IRA rules—go over what those inherited IRA rules are going to be for the beneficiaries so that the beneficiaries don’t mess this up. If it gets messed up, you disinherit your kids or grandkids for a large portion of your money. Then, Uncle Sam becomes the unintended beneficiary of the IRA.

Roth IRAs Can Make a Big Difference

Bud Kasper: It’s a terrible situation. These inherited IRA rules are so convoluted that people are going to mess them up. And they won’t know that they’re messing them up until after the fact when the IRS comes knocking on the door. What’s the solution then outside of understanding of the inherited IRA rules? My answer is simple. Roth.

Dean Barber: Roth IRAs can make a big difference. Now, Roth IRAs are going to be subject to the same RMDs rules because you’re going to have an inherited Roth IRA just like you would with a traditional inherited IRA. The difference is that the distributions from the Roth are not subject to tax. But they are subject to the 50% penalty if you don’t do it right. So, it’s not as simple as just saying, contribute to a Roth, convert to a Roth.

The Government Wants More Money

Bud Kasper: So why would this ever happen? The answer is M-O-N-E-Y, right? The government wants more money. And the president wanted to hire how many more IRS agents?

Dean Barber: Way too many.

Bud Kasper: For what? Things like this?

Dean Barber: Enforcement.

Bud Kasper: To go over and ruin the lives of people that have saved hard and want to pass it on their heirs?

Dean Barber: Well, there are strategies to pass that wealth on to your heirs, but as we’ve mentioned, they can be missed by a lot of people. That’s why it’s important to visit with a CFP® Professional that has expertise in this area.

What Does Carnac the Magnificent Have to Do with Inherited IRAs?

As we wrap up our discussion about inherited IRAs, I have a question for Bud. Do you remember Johnny Carson back in the day?

Bud Kasper: Well, I think I do.

Dean Barber: Do you remember when he used to do Carnac the Magnificent?

Bud Kasper: Absolutely.

Dean Barber: He’d hold the envelope to his head and tell you everything that was there. I’m going to be…

Bud Kasper: Carnac the Magnificent?

Back to Dean’s Secret from Earlier

Dean Barber: I’m going to be like Carnac the Magnificent by telling some predictions. I’m going to tell Bud some things that I know that he and everyone else doesn’t know.

Bud Kasper: OK. Let’s go for it.

Dean Barber: So, I can people that are about to inherit an IRA, whether they are a non-designated beneficiary, non-eligible designated beneficiary, or eligible designated beneficiary. And I can tell them just based on the age and the beneficiary designation on the IRA.

Bud Kasper: I believe you can.

Dean Barber: If you study this hard enough, you could figure it out too. The other thing that I know that maybe a couple of other people know but maybe haven’t figured out yet. I know the day that the stock market is going to rebound in earnest and it’s going to be the end of this bear market. And I know the day that we’re going to end the bear market in bonds.

The day is going to be the day that Jerome Powell says, “We are done raising rates. Inflation is under control.” The day that that happens will mark the end of the current bear market cycle.

Bud Kasper: That very well could be. That would be the final statement that needs to be made on that.

But Dean Only Has Part of the Answer That We’re All Looking for

Dean Barber: Now, when that day is going to occur, I can’t tell you. It could be six months from now. It could be 12 months from now. Or it could be 18 months from now. But mark my word. When that statement occurs, you will see the end of the bear market.

And it won’t matter whether the economy is currently in recession when he says that. Because the stock market is not a lagging indicator. The stock market is a leading indicator. So, we need to be looking for those comments from Jerome Powell.

Bud Kasper: Now, we know that they’ve raised rates again. The next FOMC meeting isn’t until December 13-14. We’ll see what that’s going to look like. But if they start to taper, that could be taken as a positive as well.

Dean Barber: It could be taken as a positive. But I think that there are a lot of things going on right now.

Bud Kasper: You want that statement from Powell.

Dean Barber: I want that statement. And to make the case for an even stronger bull market in stocks and bonds, you would think that the Fed would come out and say, “You know what? We went too far. We need to ease up here. We need to bring interest rates back down a little bit.” Then you’re going to take off a rocket ship.

The Lag Effect When the Fed Raises Rates

Bud Kasper: And the question is, why do they always overshoot? Well, I guess it’s like shooting a shotgun. They’re going to get as much of this out of the way as they possibly can.

Dean Barber: Here’s the problem that when the Fed raises rates. It’s a lag effect. It’s going to take somewhere between six and nine months for the first rate hike to find its way into the economy and to start to affect inflation. What I think we’re seeing now are the effects of the first rate hike that the Fed took earlier in the year.

We haven’t even seen the effects on the economy yet of the other rate hikes that have come out throughout the rest of the year. And it’ll be another six to nine months before we see the effects of the most recent rate high. And I think we’re going to see another hike in December. But that’s why they overshoot. They want the lagging numbers to reflect that they did a good job and that they’ve got it under control. They’re not thinking about the lag effect with what the economy is going to do. And it’s six to nine months after the rate high.

Exercise Your Right to Vote

Bud Kasper: I think one of the most important events is going to take place this Tuesday. That’s the vote. We have been encouraging all our clients to vote. You have no right to complain if you didn’t go out and vote. So, get out there and let your vote count. Whichever way you’re going, make sure it counts.

Dean Barber: I think there are too many people that have gotten far too complacent. We get complacent and then we get stupid things like this SECURE Act that messes up all the beneficiary rules. These are super complicated rules that the IRS has created for inherited IRAs. If you mess the rules up, you could be subject to a 50% penalty.

Bud Kasper: And I hope everyone shares this information on inherited IRA rules with their friends and your relatives. Anyone who has ever saved a dime in an IRA, 401(k), 403(b), or any of retirement savings plan is going to be impacted by this. This isn’t something that’s going to go away. It’s something that’s critically important for people to understand and plan around.

Using Life Insurance to Do Roth Conversions

Dean Barber: Right. Bud and I talked earlier about potentially leaving a Roth IRA to your children or grandchildren as opposed to the traditional IRA. That can obviously ease the tax burden. But the problem is that to get the money from a traditional IRA to a Roth IRA, you need to either have made all your contributions to the Roth IRA or have done Roth conversions during your lifetime.

Roth conversions could be done systematically—a little bit at a time—to stay in a lower tax bracket. That creates some wonderful benefits. You can also use leverage to do Roth conversions. And what I mean by leverage is using life insurance to do Roth conversions.

Bud Kasper: Which you rarely hear us talk about on America’s Wealth Management Show.

Dean Barber: Because of the SECURE Act, massive taxes are going to be due on these inherited IRAs once they pass the next generation. They’re going to be forced out over a 10-year period. Typically, the people that are going to be inheriting IRAs will be in their peak earning years. So, you’re getting all that money out at the top tax bracket.

Potential Tricky Tax Situations with Inherited IRAs

For example, let’s just say that somebody is 55. They’re in the peak earning years and they inherit money from their 85-year-old father that passed away. It’s a $1 million IRA. All that money is going to need to come out and most likely they’re going to be in that top bracket. If they’re in a state where you need to pay taxes on it, they’re going to be getting close to a 50% tax on that. So, they’re going to lose somewhere between $450,000 and $500,000 of that $1 million IRA to taxes.

That’s just a fact. That’s what’s going to happen. So, if that 85-year-old had been planning earlier, they could use a portion of the RMDs—assuming they don’t need all of that to live on—and buy a life insurance policy for $500,000.

Bud Kasper: Whatever the anticipated tax would be.

Dean Barber: So, then you have the proceeds from that life insurance policy at the death of the IRA owner that come to the beneficiary tax-free. That beneficiary can then use those proceeds to convert 100% of that IRA to a Roth IRA. Now, you’ve got tax-free income. You’re still going to have to take it out over a 10-year period, but you can now have tax-free income. And there’s no way that you will ever pay as much in life insurance premiums as you would in taxes.

It’s Time to Do Some Year-End Tax Planning

Bud Kasper: That’s right. Because you leverage pennies on the dollar, if you want to think of it that way. And please remember, if you’re looking at Roth conversions, they need to be done by the end of this calendar year.

Dean Barber: There are a lot of different tax planning techniques to get away from these snares that the IRS has put into your retirement plans. But it’s all part of a comprehensive financial plan. And you can start building your financial plan by using our financial planning tool. It’s the same tool that our CFP® Professionals use with our clients, and you can use it from the comfort of your own home. Just click the “Start Planning” button below to begin building your plan and see how things like inherited IRAs are a big piece of your retirement puzzle.


Do You Have Questions About These Complicated Inherited IRA Rules?

You also need to work with a good CFP® Professional who understands all the rules when it comes to retirement planning. We’re giving you an opportunity to schedule a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals at no cost or obligation.

And remember, we’re not here to sell financial products. We’re here to provide education and guidance to get you to and through retirement. You can visit with us in person, virtually, or by phone. We can even screen share with you while using our financial planning tool.

We hope you’ve enjoyed our show today on America’s Wealth Management Show. I know it was a lot. I know it was deep and I know there’s a lot of rules out there, but we hope the education was helpful for you. Everybody stay healthy, stay safe. We’ll be back with you next week.

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