Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series. On Fridays, TaxConnections presents questions often asked of a Financial Planner.

Dear Ed: Financial Planning Questions  

Question: The SECURE Act of December 2019 raised the beginning age for RMDs from 70 1/2 to 72. When should households with higher incomes consider ROth conversions?

Answer: In their first few years of retirement before the temporarily lower tax rates expire at the end of 2025.

Question: The SECURE Act creates problems for IRA trusts, what problems should I be aware of if I have an IRA trust?

Answer: Before the SECURE Act, language in an IRA trust might restrict access to the beneficiary to annual RMDs from the IRA. The intent was to stretch the payments to mitigate taxes however now the maximum stretch period is only ten years. This means there is no RMD due in years 1-9, but distributions must be taken by the end of year 10, after the death of the owner.  This may sense with a Roth, but it can penalize beneficiaries of traditional traditional IRAs who, although they get ten years of tax deferral, will be forced to take a large taxable distribution possibly resulting in higher taxes.

Question: What is one estate planning strategy to consider now that the stretch IRA has been removed?

Answer: Life insurance death benefits can be received free of income tax as well as estate tax free. Proceeds can be used to offset the higher tax liability caused by the  the new 10-year distribution period.

Contact Ed Mahaffy

(How To Select A Financial Advisor – Ed Mahaffy)

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