10 Ways to “Beat” the new “Death Tax”

As the world focuses on the COVID19 pandemic, another evil lurks in the shadows, the Death Tax”. On January 1, 2020, Congress enacted the SECURE Act. A part of this Act makes a big change that affects the tax rates of non-spouse beneficiaries of tax-deferred retirement plans, i.e. 401(k) and traditional IRAs.

Previously, a non-spouse beneficiary could spread out distributions from an inherited retirement plan for their remainder of their lives.  This allowed lower distribution amounts which meant lower income to the beneficiary. This meant lower income tax consequences.

Now, a non-spouse beneficiary must take full distribution of the entire retirement account funds within 10 years of the grantor’s death. This means higher distributions, higher income, and higher taxes.  Most the beneficiaries will be in the highest earning period of their life. This extra income will potentially push the beneficiary into the higher tax bracket, resulting in payment of higher income taxes.

However, there are some ways to lessen the tax impact on the non-spouse beneficiary.  Careful estate planning and retirement planning now can greatly help your non-spouse beneficiaries in the future. Some suggestions on beating the “death tax” are:

1.  Roth IRA Conversions (Series)
2. Social Security Planning- delay start to reduce income to qualify for IRA Roth Contributions and Conversions
3. Update your Estate Plan to plan for the tax- check for conduit trusts
4. Start gifting now- pull distribution once you reach 72 pay the taxes and then gift the remainder.
5. Premiums on life insurance
6. Create 529 plans, buy insurance policies or create a Roth IRA for child.
7. Spend more money- take money from retirement to pay for a family vacation
8. Charitable giving- QCD Qualified Charitable Giving straight from Retirement Account
9. Charitable Remainder Trusts
10. Sprinkle Trust

For more information on these planning tools and strategies you can call Boswell Law Firm at (832) 919-6595, visit our website at www.boswelltexaslaw.com or email our attorney at Duana@boswelltexaslaw.com.