The House Ways and Means Committee passed the SECURE Act last week in a bid to help workers save for retirement. The bill is now headed for the House floor.
There is one provision in the bill that wealthy people should be aware of: the gutting of the the “stretch IRA.”
In an article published yesterday by CNBC entitled, “Congress May Gut the Stretch IRA’ That Wealthy People Love,’ reporter Darla Marcado warns that, “A provision in the bill would force the distribution of a retirement account within 10 years for most non spouse beneficiaries, which could throw cold water on a tax-savings strategy known as the ‘stretch IRA.’
This means, the bill would put a restriction on an inherited-IRA that would make the beneficiary withdraw the entirety of the IRA balance within ten years. Each year, the beneficiary would suffer massive tax consequences as the withdrawals are considered income and are therefore taxable. As Mercado puts it, “The legislation…may put the kibosh on a strategy for passing large individual retirement accounts to heirs.”
What is a “stretch IRA’ and why does this matter?
Mercardo briefly explains the “stretch IRA” strategy in that it, “…allows younger heirs (children and grandchildren) to take required minimum distributions (RMD’s) from the inherited account based on their own much longer life expectancy.”
In other words, the heirs get an advantage by ‘stretching’ the IRA’s tax-deferred growth over many years while taking small required distributions. Because of the small distributions, the heirs don’t have a lot of tax liability each year.
With the new bill, Jeffrey Levine, CPA and CEO of BluePrint Wealth Alliance states, “an accelerated distribution of the account over a much shorter period of time would result in a large tax bite.”
The article highlights a couple alternative strategies such as a Charitable Remainder Trust and Life Insurance.
The Charitable Remainder Trust is risky and one must be very careful with how it is structured as it can be a, “tax minefield if done incorrectly.” (Mercado 2019). This strategy does not provide tax-write offs on the required distributions.
As for Life Insurance, the beneficiary could invest the distributions into life insurance, but would also not receive any tax write-offs, and therefore he or she would still be losing a big chunk of money to the IRS.
At Lasaii Benefits, we have a better approach!
Lasaii Benefits offers a better strategy by using those ten years to invest the funds to help purchase real estate that you and your family can occupy and/or use to create income with the SAFE HARBOR®-Directed IRA™ (SHIRA™).
IRA Real Estate to occupy!
Our proprietary program allows for occupancy of the real estate by direct family members because the title of the real estate is in your name, not in the name of the IRA. Therefore, there are no prohibited transactions with the SHIRA™! Read the differences between the three IRA’s here:
With Lasaii’s creative solution, the tax liability (if you qualify) of taking those RMD’s over the ten years would either be completely offset or minimized because of the tax benefits associated with owning real estate.
Our IRA real estate program also has the benefit of Step Up in Basis, therefore your heirs would inherit the real estate at it’s appreciated value with no tax consequence to them whatsoever.
The SHIRA™ offers choices in what type of real estate to invest in, such as, a primary residence, vacation home, investment property or commercial real estate.
If you are a charitable-minded individual, you could instruct your heirs to donate the real estate after the tenth year to a charity of your choice and receive that tax write-off as well.
Among the tax benefits (if you qualify) of real estate ownership, the Step Up in Basis to heirs, the potential appreciation of the real estate, possible interest earnings of the SHIRA™, and rental income payable to you that the real estate could provide, you would also be leaving your family with a tangible legacy and a solid foundation to build family memories because of the intrinsic value of occupancy that our SAFE HARBOR®-Directed IRA™ offers.
We specialize in helping clients structure customized, tax effective IRA real estate investments that enhance their portfolios, lifestyles, market positions, and legacies.
Please share this with friends and family that could benefit from our proprietary IRA real estate structure!
Visit www.lasaiibenefits.com to sign up to receive our “Understanding the SAFE HARBOR®-Directed IRA™” PDF brochure to learn more. You may also visit our website to see if you qualify for our program.
Mercardo, Darla. “Congress may gut the ‘stretch IRA that wealthy people love.” CNBC . 20 March 2019