Sept. 30 Is Deadline for 401(k) and IRA Holders to Designate Beneficiaries

Sept. 30 Is Deadline for 401(k) and IRA Holders to Designate Beneficiaries

Those who inherited IRAs and 401(k)s have until September 30, 2020 to make beneficiary designations that could have big implications for the accounts’ long-term growth potential and taxes.

This year the deadline is more important than ever. The SECURE Act is now phasing out a strategy known as the stretch IRA. The new rules have created questions relative to how people are going to receive, manage, and distribute their inherited assets.

Previously, designated beneficiaries who inherited retirement accounts could generally stretch their distributions, or payouts, from the accounts out over their entire life expectancy. But under the SECURE Act, if an account owner dies in 2020 or later, generally the beneficiary must distribute the entire balance of the account by the end of the tenth year after that of the original owner’s death. That shortened time frame for distributions would mean the account has less growth potential and could push the beneficiary into a higher tax bracket.

It’s important to make sure by Sept. 30 that everyone named as a beneficiary is a human capable of acting as either a designated beneficiary or eligible designated beneficiary. That’s because the respective 10-year payout period for these living beneficiaries could be lost if mixed with non-living beneficiaries, such as a charity.

The new rules are complex, so beneficiaries should consult their Haynie & Company CPA, estate-planning attorney and financial planner before time runs out.

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