What should I do if Stretch IRAs are eliminated?

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Q. I am concerned about the SECURE and RESA acts currently being considered in Congress. If either passes, my children will lose the inherited stretch IRA ability and face a much higher tax bill upon my demise. Because I don’t need my Required Minimum Distributions, does it make sense to do a gradual Roth IRA conversion and use the RMDs to pay taxes on the conversion? Or should I invest the RMDs in my brokerage account?
— Planning

A. You have several options here.

You’re correct that Congress is considering legislation that would eliminate the ability of your children to create a Stretch IRA – which would have allowed them to stretch distributions from the inherited IRA over their lifetimes.

Under the proposed SECURE and RESA acts under consideration, the maximum deferral period will be 10 years, said Martin D. Hauptman, an attorney with Mandelbaum Salsburg in Roseland. “If the beneficiary is a minor, the period would be 10 years or age 21.”

You can learn more about the pending legislation here.

The best planning strategy for you will depend on your overall finances and what you want for your children’s inheritance.

Hauptman said the conversion to a Roth may be a good planning idea depending on your tax bracket.

Putting the money in a brokerage account is also an option.

“You may want to consider using the RMD proceeds to purchase a life insurance policy held by an irrevocable trust for the benefit of your children,” he said.

We think you should sit down with a financial advisor and an estate planning attorney so they can review the details of your finances and help you choose the best path for you.

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This story was originally published on Oct. 15, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.