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The Death of the Stretch IRA

March 09, 2021

In December of 2019, the Secure Act was passed. The secure act was a major piece of retirement legislation that created a lot of changes for retirement planning - some good and some bad.

This act pushed back when you could take a required minimum distribution. That was a good thing. It also allowed more people to contribute to retirement accounts, which was also a good thing.

The major negative to the Secure Act was that it eliminated the stretch IRA.

What is the Stretch IRA? 

If you had a family member who passed away and they had a balance in a retirement account, you then received that as an inheritance, and you had a period of time to take the money out of the account.

So, a stretch allowed you to stretch that time period over your remaining life expectancy. So, if you were someone who was 40 or 50 years old and you inherited an IRA from, let's say, a parent, you could stretch that out over 20, 30 years and really minimize the taxes that you'd pay if you didn't need to access that money right away.

The Secure Act limited that time to a 10-year period. This might not sound like a short amount of time, but it can really impact your taxable income. In some cases, this can bump you up one or even two tax brackets.

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