Alternative Retirement and Estate Planning Strategies since the Elimination of the Stretch IRA

In 2019, US Congress passed the SECURE Act with the intent of helping taxpayers save for retirement. This Act included a change to the Internal Revenue Code Section 401, which eliminated the Stretch IRA by capping the number of years for distributions from inherited IRAs. The new regulations state that if the inherited IRA has a non-spouse beneficiary the distributions cannot exceed ten years, which drastically reduces the ability to use the IRA to transfer, and extend, wealth to one’s heirs while minimizing taxes. This study examines the impact of the passage of IRC Section 401 on those actively planning to utilize a Stretch IRA for their retirement and estate planning. Specifically, alternative scenarios are presented as the authors compare the future value of IRA accounts under the old regulations to values under the new regulations. The results indicate that individuals wanting to their leave retirement accounts to heirs should consider converting accounts to a Roth IRA as Roth IRA conversion is the optimal outcome for multigenerational wealth transfer.