This is the archive of CPA Now blogs posted on the PICPA website through April 30, 2025. Want more recent blogs?

Read current blogs

By J. Victor Conrad, CPA (inactive), CFP, ChFC, AIF

As a certified financial planner, I’m a firm believer that it’s not so much about how much you make, but how much you keep. So, it’ll be no surprise when I say the elimination of the lifetime “stretch” beneficiary IRA option has been much more than a minor occurrence.

In the past, while one still needed to keep track of things, it was fairly easy to plan around beneficiary, or inherited, IRAs. For the most part, the holder of a beneficiary IRA would have required minimum distributions (RMDs) annually on which income taxes were paid. While this money could always be reinvested if not needed for other purposes, the amount would typically not be large enough to propel the taxpayer into a significantly higher tax bracket.

Well, with the Setting Every Community Up for Retirement Enhancement (SECURE) Act that has all changed. Now, with few exceptions, 100% of a beneficiary IRA balance must be withdrawn and the applicable taxes paid within 10 years of the original owner’s death.

This change calls for more surgical planning around the beneficiary’s cash flow needs and their tax bracket. While I don’t advocate for the tax-tail to wag the dog, I do feel that you can provide some added value to your client relationships by starting a conversation related to the new rules. Clients will be well-served if they understand that blindly spreading withdrawals fairly evenly over the 10-year period might not result in the most tax-efficient approach.

The following is not meant to be an exhaustive list of ideas, but rather a few strategies to consider. First and foremost, though, gaining an understanding of the taxpayer’s year-by-year taxable income situation (bonuses, bad year for business, exercising stock options, layoff, projected year of retirement, etc.) will become critical if the goal is also to minimize taxation on the withdrawals.

• A client is currently 59 years old, and their goal is to retire at age 65.  In about six years, they will likely need to begin drawing from their investments to meet their lifestyle needs and supplement social security, pension income, etc.  While conventional wisdom is to let tax-deferred accounts grow and draw from taxable accounts first, owning this bene IRA suggests that we start drawing from the bene IRA first, since at age 65 we only have a few years remaining to get all of that money out.
• A client has a decline in taxable income. Take a close look at their tax bracket: maybe there is room to take more income and still stay in the 12% bracket, 22% bracket, or 24% bracket by taking some money from a beneficiary IRA while temporarily in a lower tax bracket that year. Remember, net proceeds do not need to be spent; they can be reinvested. This could help a lot in minimizing the taxes paid on required withdrawals.
• With currently low tax rates and uncertainty surrounding their future, it may be a good time to proactively accelerate Roth conversions so beneficiaries avoid greater taxation on distributions from a traditional IRA. This could be an especially attractive strategy if the beneficiaries are in a higher tax bracket than the account owner.
• Individuals with legacy priorities may not be motivated under the SECURE Act to accelerate Roth conversions because a grandchild (for example) will not receive the long period of tax-free growth from an inherited Roth (yes, even beneficiary Roth IRAs need to be totally distributed within 10 years).
• Consider a Qualified Charitable Distribution (QCD). One of my favorite strategies even before the SECURE Act, QCDs may become more advantageous now because IRAs will become a less attractive inherited asset. If an individual is older than 70½, he or she is entitled to make tax-free gifts of up to $100,000 per year from their IRA payable directly to charity, and this counts toward the RMD. Therefore, tax-free depletion of an IRA may be more beneficial than the dissipation of other nonqualified appreciated assets, which currently could pass to beneficiaries at a stepped-up basis.
• While not a new strategy, life insurance may become more powerful. Taking withdrawals from the retirement account to pay premiums on a life insurance policy could result in more money, after applicable taxes, going to heirs when compared to leaving the retirement account to the beneficiaries. Beneficiaries typically receive life insurance death benefits tax free (and usually free of inheritance tax too). So, depending on the insurability of the individual, the total death benefit payable to the beneficiaries may well exceed what they would receive as a beneficiary of the IRA distributions used to pay the premiums, net of taxes.

It is important now to revisit and likely revise estate plans to take a more specific “asset-by-asset” approach, rather than simply splitting assets by percentage. You, as a CPA, are in a great position to start the conversation, loop in their financial adviser, and add value to your client relationship.

J. Victor Conrad, CPA (inactive), CFP, ChFC, AIF, is the founder of PINNACLE Financial Strategies LLC in Wexford, Pa. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at vconrad@pinnaclestrategies.org.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.