The IRS has recently released final regulations regarding inherited retirement accounts, providing much-needed clarity on the “10-year rule” introduced by the SECURE Act in 2020.
Key Changes for Your Clients
The SECURE Act significantly changed how beneficiaries must handle inherited IRAs, effectively ending the “Stretch IRA” strategy. Beneficiaries must now liquidate inherited accounts within 10 years for deaths occurring in 2020 or later. While certain Eligible Designated Beneficiaries (surviving spouses, minor children of the IRA owner, and disabled beneficiaries) are exempt, most of your clients will need to adjust their planning strategies.
The new IRS guidance clarifies several critical points:
It’s also worth noting that the required minimum distribution amounts are based on the beneficiary’s age and the Single Life Expectancy Table published by the IRS. While this calculation is intended to spread the distributions over the beneficiary’s life expectancy, the account must still be depleted within 10 years.
Philanthropic Solutions for Your Clients
Three charitable giving strategies that can help your clients manage the tax impact of these required distributions:
Qualified Charitable Distributions (QCDs)
For clients aged 70½ or older, QCDs remain a powerful tool. In 2024, they can direct up to $105,000 ($210,000 for married couples) annually from their IRA as their Required Minimum Distribution directly to the charities of their choice through The Foundation for Delaware County. A QCD offers a trifecta of benefits: Your clients reduce their taxable income, their heirs can inherit more favorable assets like appreciated stock, and their favorite charity receives a sizable gift. These transfers also count toward any required minimum distributions your clients may have for the year.
Gifts of IRA assets are especially advantageous for older adults who can’t itemize their charitable gifts under the current tax law. Plus, new regulations on inherited IRAs mean your clients’ beneficiaries may face a hefty tax burden, but these same assets can go to charity tax-free.
This strategy reduces taxable income without requiring an itemized deduction.
Donor-Advised Funds
Similar to a family foundation but with fewer administrative responsibilities, donor-advised funds offer many advantages to donors, including:
Split-Interest Gifts
For clients over 70½, charitable remainder trusts and gift annuities provide another avenue for tax-efficient giving. Currently, up to $53,000 of an RMD can be directed to these vehicles as a qualified charitable distribution, offering both income streams and charitable deductions.
How We Can Help Your Client
We’re available to answer your questions about philanthropy or meet with you and your client – all at no cost.
Interested in learning more? Contact Monika Collins; 610-744-1015