Page 22 THE EVERETT ADVOCATE – FRIDAY, SEPTEMBER 17, 2021 KIWANIS | FROM PAGE 6 ognition As Leadership Sponsor, Name Prominently Displayed On Event Shirts Principal – $500 – Media Recognition As Principal Sponsor, Name Prominent On Event Shirts Director – $250 – Media Recognition As Directing Sponsor, Name Prominent On Event Shirts Donations In Kind: $50, $100, $150, $200. Please make checks payable to: Ersilia Cataldo Matarazzo Memorial Fund By Everett Kiwanis PO Box 490186 Everett, MA 02149 “YOUR FINANCIAL FOCUS” JOSEPH D. CATALDO THE NEW 10 YEAR RULE ON RETIRMENT PLAN DISTRIBUTIONS The SECURE Act was passed LIKE US ON FACEBOOKADVOCATE NEWSPAPER FACEBOOK.COM/ADVOCATE.NEWS.MA on December 20, 2019. One of the biggest changes to retirement accounts included in that legislation was the new provision relating to retirement plan distributions for most nonspouse benefi ciaries of such accounts. Prior to the passage of the SECURE Act, all designated benefi ciaries (living individuals and qualifying Trusts) were allowed to use the “stretch” strategy in order to spread out the distributions from the inherited retirement account over the individual’s life expectancy as well as the life expectancy of the benefi ciaries of the qualifying Trust. This was a big win for the benefi - ciary as the inherited retirement account could continue to be invested for the long-term without major tax bites taken out each year due to a much smaller required minimum distribution (RMD). This was also a loss for the federal and state governments as the tax revenue would be received over a much longer period of time. The SECURE Act broke up the designated beneficiaries into two groups: 1. Eligible benefi ciaries and 2. Non-Eligible benefi - ciaries. The eligible benefi ciaries are able to stretch the required minimum distributions over their life expectancies. Who’s in this group? Surviving spouses, disabled beneficiaries, chronically ill benefi ciaries, minor children of the decedent account holder (as well as qualifying Trusts established for their benefi t), and benefi ciaries not more than ten years younger than the decedent account holder. All other benefi ciaries will be part of the non-eligible group and will not be able to stretch out the RMD’s over their lifetime. Now, the IRS wins and this group of benefi ciaries loses. They have to withdraw the account in its entirety within a ten-year period. A 35 year old benefi ciary of his father’s IRA account who dies will have to include $50,000 in his or her taxable income over a 10-year period. This income will be added to this child’s other income each year. He or she could lose $13,500 in each of those years to federal and state income taxes assuming the federal marginal tax bracket is 22% and the Massachusetts rate is 5%. That’s $135,000 out the window over a ten-year period for a middle class American. The RMD can be taken ratably over the ten- year period or the benefi ciary can wait until the tenth year to take it all out. If the RMD is not taken out, a 50% penalty on the shortfall would be assessed by the IRS. Under the old rule, the 35 year old benefi ciary would have been able to withdraw the inherited retirement account over a period of 48.5 years. The new 10-year rule has a dramatic affect on the net “after tax” value of an inherited retirement account.
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