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Gierach and Gierach, P.A Gierach and Gierach
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Estate Planning Alternatives to The Stretch IRA


As we previously discussed, the Secure Act eliminated the stretch IRA and replaced it with a 10-year payout for most non-spouse beneficiaries, including instances where a trust is named as the beneficiary, interfering with the ability for many to obtain the estate planning objectives they originally had in mind.  However, there are other “tax-smart” estate planning alternatives for those who may have otherwise  used the stretch IRA, but no longer can, as we discuss below:

Using Roth IRAs as Intergenerational Wealth Transfer Tools

Roth IRAs offer a number of advantages to those seeking to transfer wealth to their spouse and/or others, including the following:

  • Qualified withdrawals are free from federal income tax; both for you and any non-spouse beneficiaries, who can continue to accumulate earnings for at least 10 years;
  • Spouses can treat the account as their own and continue to accumulate wealth; and
  • They are exempt from required minimum distribution rules that require regular withdrawals.

Note that non-spouse beneficiaries who inherit Roth IRAs starting in 2020 can earn income free of federal taxation for as long as the account owner lives, and for 10 years after that. However, the Secure Act introduced a new 10-year liquidation rule which requires that they liquidate the account within 10 years, with several exceptions provided.

It Is Well Worth Converting Traditional IRAs to Roth IRAs for Your Beneficiaries

Due to the benefits that Roth IRAs provide, converting any existing traditional IRAs into Roth IRAs is well worth it in terms of an intelligent estate planning strategies, even though it triggers some income taxes, because you are essentially pre-paying future income taxes for your account beneficiary when the tax cost of converting the account is likely lower than it previously was. In addition, the tax law allows you to spread the conversion process out over several years, which allows you to take advantage of current tax rates that are likely lower than future tax rates will be. Following this strategy allows a family to accumulate federal income-tax-free-earnings for decades if the original account owner passes the account onto their spouse, and that spouse then passes the account onto their child, who waits 10 years to withdraw anything.

Other Options: Life Insurance, 529 Accounts, & Gifts

There are other options available in place of the stretch IRA as well, such as:

  • Using life insurance to transfer wealth, as death benefit payments are received free of federal income tax
  • Using section 529 college savings accounts to transfer up to $75,000 to anyone to use for education expenses, allowing you to claim a federal gift tax exclusion. These operate similarly to Roth IRAs in that gains and income accumulate free of federal income tax, and are thus an intelligent way to transfer wealth between generations
  • You can gift up to $15,000 in annual exclusion gifts every year to as many people as you like without any federal tax consequences, thus reducing your taxable estate

Our Florida Estate Planning Attorneys Can Answer Your Questions Concerning What to Do for Your Beneficiaries Now That the Stretch IRA Is Gone

If you have any questions or concerns about smart estate planning strategies and alternatives to the stretch IRA, contact our experienced Orlando estate planning attorneys at Gierach and Gierach, P.A. today for a free consultation.



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