Money commonly causes anxiety. So inherited money can take that anxiety to a new level.
As a result, many inheritors procrastinate. They hold off on acting, often to their detriment. The Wall Street Journal reports on a new rule that this group may miss:
“Under the new rules, most people who inherited accounts in 2020 or later, other than spouses, have to take the money out within 10 years, starting the year after the original IRA owner’s death. Those who inherited from someone who was taking required payouts… have to take annual minimum payouts in years one through nine, and empty the account in year 10.
The IRS had delayed enforcing the annual payouts — until this year.
People who inherited before 2020 can use the old rules, which allow beneficiaries to stretch out distributions over their lifetimes, lessening the tax hit.”
Pre-tax and Roth (after-tax) accounts each offer different advantages. The best choice is specific to the individual, and can change over time. But in general, these rule changes exemplify why I’m inclined to start with Roth as a default preference.
Which option demands the least from the account owner over time? Which option provides the best outcome if the owner takes little-to-no action?
In such cases, the Roth often wins.
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About the author: Kevin Mahoney, CFP®
Hi, I’m Kevin. I’m the founder of Illumint and a financial advisor in Washington, DC. I specialize in financial planning for Millennials like you. As a Millennial father and Certified Financial Planner™, I empower our peers to invest with confidence and flexibility. If you’re new to Illumint, I’m glad you’re here – you now have access to free personal finance tips written specifically for Millennials. I encourage you to read, watch, or listen to the ideas I share about exchanging your money for memories with your friends and family. And then when you’re ready, please send me your thoughts & questions!
