Society for Case Research MBAA 2023

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Autor: Dr. Sundarrajan Sankar Email Phone : (817) 717 3313 Affiliation : Tarleton State University - Fort Worth 10850 Texan Rider Dr. , Fort Worth TX 76036

SECURE Act, a critical incident that will change saving, investment and spending patterns

The Setting Every community up for Retirement enhancement (SECURE) Act went in effect in January 2021. It is a very significant piece of legislation that has many positive features. SECURE Act has a very important negative provision that will directly affect many middle and upper middle-class savers. It eliminated a very important retirement tax and saving strategy called The Stretch IRA. A stretch IRA previously allowed a non-spousal beneficiary of an inherited IRA, usually children could stretch the distributions from the IRA over their lifetime based on the age of the children. The strategy allowed the IRA’s assets to continue growing in a tax-deferred manner. It also enabled the beneficiary to avoid a potentially massive, tax payment on the IRA balance at the death of account holder. This allowed a lot of flexibility for the beneficiary of an inherited IRA in terms of minimizing tax liability, and less costly estate planning The SECURE Act has removed such flexibility. The Act’s 10-year rule mandates that the non-spousal beneficiary withdraw the entire balance of the inherited IRA within 10 years. This is a huge problem for the non-spousal beneficiaries particularly children. The children when they inherit are likely to be in their peak earning period. This would mean that the marginal rate at which the inherited money will be taxed will be at a very high level and beneficiaries living in high tax states could potentially pay up to half of their inheritance in taxes. This critical incident of SECURE Act legislation has a huge impact on how to save and invest in the retirement asset and how to spend assets at retirement.