PLANADVISER -May/June 2022 - 7

beneficiary. Because of children's long life
expectancy, the beneficiary could spread
out the required distributions, and thereby
the tax deferral on the account's principal,
over many years. For the youngest inheritors,
this could mean 50, 60, 70 or even 80
years of tax deferral, according to Ed Slott,
certified public accountant and professor
of practice at the American College of
Financial Services.
" I think the IRS rules are the final nail
in the coffin for IRAs as an estate-planning
vehicle, " Slott says.
The new rules are complex, hence
the large number of retirement savers
now concerned that they need to make a
change in their planning, Slott says. Financial
advisers should educate themselves
on what is changing and why, engage with
their clients and offer up alternatives such
as Roth IRAs or life insurance, he says.
Slott suggests identifying those clients
with the largest IRAs-where the account's
balance will probably not be consumed in
the client's own lifetime. These accounts
are the ones most likely to be left over to
the next generation and to fall under the
new rules about RMDs. Owners of these
IRAs will be interested in knowing whether
their plan to bequeath their account will
still hold up, he says.
" The last thing an adviser wants to hear
when a client has died is the beneficiaries
asking, 'How come you didn't update this
plan? You didn't know the rules changed?
Now we'll have to take all this money out
in 10 years, and the taxes will cost us a
fortune,' " Slott says.
Ronald Cluett, of counsel at Caplin
& Drysdale, recommends that advisers
discuss with each plan sponsor client
how its plan treats RMDs. " What happens
when someone dies? What happens when
someone hits normal retirement age after
leaving the company? Start there, " he says.
This is important to review, Cluett says,
even if the majority of a plan's participants
will roll their money over to an IRA
before they are forced to take RMDs, or
before their account must be passed to a
beneficiary.
Exemptions
When the SECURE Act eliminated the
stretch IRA, it did allow for multiple categories
of exemptions to the 10-year window,
the most notable being the surviving
spouse. Others include a disabled person,
a minor child (but not a grandchild) of the
deceased IRA owner and someone no more
than 10 years younger than the IRA owner.
Congress named these special beneficiaries
" eligible designated beneficiaries. "
According to Slott, there is another
" unwritten " category of such EDBs. The
SECURE Act is effective only for inheritances
received in 2020 or later, he
explains. If a beneficiary, such as a grandchild,
inherited in 2019 or earlier, that
person would be grandfathered under the
old rules and thus be able to stretch the
time. But when that beneficiary dies, the
new beneficiary will not have the option to
stretch what remains, he says.
Part of the confusion in the market
comes from an old rule referred to as the
" at least as rapidly " rule, Slott notes. Under
this rule, once the IRA holder begins
disbursements, the beneficiary must use
the same process for disbursement, Slott
says. " In other words, RMDs, once they're
turned on by the IRA owner during that
person's life, can't be turned off by the
beneficiary, " he says.
The confusion stems from the IRS
essentially saying that both the " at least
as rapidly " rule and the 10-year rule may
apply to the same beneficiary if death was
after the required beginning date of the
distributions.
" So, they sort of have the old stretch IRA
for nine years, and then a balloon payment
at the end of year 10. Then everything has
to come out. This was the fly in the ointment
that changed all the planning and is
causing confusion, " Slott says.
Despite the confusion and complexity,
RMDs are not to be taken lightly, Cluett says.
" Mistakes with RMDs can create a host of
tax and legal issues for the plan and/or the
participant who received an incorrect RMD,
or didn't receive one when she should have
received one. " -Rhea Wessel
ON THE MOVE
➜ SageView Advisory
Group hired Javier
Obando as a retirement
plan consultant
in its Newport Beach,
California, office.
➜ The Securities and
Exchange Commission
appointed
Richard Best as
director of its division
of examinations.
➜ Advisor Group will
acquire Infinex Financial
Holdings Inc., the
holding company of a
privately held broker/
dealer.
➜ OneDigital
appointed Jyoti Mokal
as vice president of
product.
➜ Newfront expanded
its retirement services
team with the hire of
Rich Schainker as
fiduciary expert.
➜ Richard Porter will
lead Nationwide's
brokerage annuity
distribution channel.
➜ Suzanne van
Staveren joined
Edelman Financial
Engines as executive
vice president and
chief financial officer.
planadviser.com May-June 2022 | 7
➜
http://www.planadviser.com
PLANADVISER -May/June 2022

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