A Safer Retirement and Environment – What We’re Implementing to Help Keep You Safe: READ MORE

Here at Chadmere Capital Inurance and Financial Services, we are adhering to state and local guidelines in order to protect both the health and safety of clients and staff. Keeping our clients and staff safe is our highest priority and we’re taking all appropriate measures to ensure a safe environment. Should you prefer to not meet face-to-face, we are continuing to serve our clients through virtual settings such as Zoom or phone calls.

We look forward to continuing to help individuals and families achieve their ideal retirements.

Chademere Capital Insurance and Financial Services
(803) 242-1050

CLOSE

SECURE 2.0’S BIGGEST MESS

By Ian Berger, JD
IRA Analyst
Follow Us on X: @theslottreport

 

Of the 92 provisions in the SECURE 2.0 legislation, signed into law last December, by far the most challenging is section 327.  Section 327 changes the distribution rules for spouse beneficiaries of IRA (and workplace plan) account holders and is effective January 1, 2024.

It’s hard to know exactly what Congress was trying to accomplish with section 327. Some commentators believe it was designed simply to create more favorable distribution rules when a surviving spouse inherits from a younger IRA owner.  Fair enough, but if that’s what Congress was trying to do, the drafters of the new law totally messed up. Congress should have simply layered the new rules for older spouse beneficiaries on top of the existing rules that would continue to apply for all other spouse beneficiaries. Instead, it completely removed the existing rules and substituted a brand new set of complicated rules that will apply to ALL spouse beneficiaries. The result is that some of these beneficiaries will actually be in a worse position than they are in under the current rules. That couldn’t have been what Congress intended.

Under the rules now in place, spouse beneficiaries generally have two options. One is to do a spousal rollover of the deceased owner’s IRA to the spouse’s own IRA. That usually isn’t recommended until age 59 ½ because the survivor will be subject to the 10% early distribution penalty if she taps into the funds before then. The second option is to remain an IRA beneficiary. That avoids the 10% penalty and allows RMDs (required minimum distributions) to be delayed until the deceased IRA owner would have reached his RMD required beginning date (generally, age 73). No election is required for this second option.

Starting next year, the spousal rollover is still on the table as the best option for spouse beneficiaries age 59 ½ or older. But things go off the rails for a spouse beneficiary who doesn’t want to do the rollover (because, for example, she’s younger than 59 ½ and worried about the 10% penalty). That person will have to make an actual election if she wants to have RMDs delayed until the deceased spouse would have been 73. Making that election will allow the spouse beneficiary to use the IRS Uniform Lifetime Table (rather than the Single Life Table) to calculate RMDs. That’s a good thing since it will result in lower RMDs. But, when RMDs start, the spouse beneficiary must apply that table by using not her own age, but the age the deceased owner would have reached had he lived. That’s also a good thing if the surviving spouse inherits from a younger IRA owner – not a common situation. It’s a bad thing if the spouse beneficiary inherits from an older owner – the more common situation.

The alternative for a surviving spouse younger than 59 ½ who remains a beneficiary is not to make the election. But not making the election means the spouse beneficiary must start taking RMDs the year after the IRA owner died (like non-spouse beneficiaries). Another bad outcome.

The bottom line is that, whether intended by Congress or not, section 327 is a mess that needs to be fixed. January 1, 2024 is right around the corner, and hardly anyone seems to be paying attention. It’s imperative that Congress (or the IRS) act as soon as possible.

https://www.irahelp.com/slottreport/secure-20%E2%80%99s-biggest-mess-0

Ready To Take

THE NEXT STEP?

 

For more information about any of our products and services, schedule a meeting today.

Or give us a call at (803) 242-1050

Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. Nothing on this website constitutes investment, legal or tax advice, nor that any performance data or any recommendation that any particular security, portfolio of securities, transaction, investment or planning strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations, execution of required documentation, and receipt of required disclosures. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #175083.

 ADV Part 2A & Form CRS              Privacy Policy