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New Tax Changes Benefit Special Needs Planning

An important tax change for taking place at the end of 2019 as flown under the radar for many clients and planners. The SECURE Act has eliminated the ability for an inherited IRA or 401(k) to be "stretched" out over the lifetime of most designated beneficiaries. However, an important exception exists for disabled and chronically ill individuals. 

While a non-disabled adult child must withdraw the entirety of an inherited IRA or 401(k) within 10 years of the owner's death, a disabled or chronically ill individual is permitted to take only the required minimum distributions over his or her lifetime, allowing for potentially substantial tax deferral and asset growth.

Generally, these individuals should never be named as beneficiaries outright of such assets, because the receipt of those funds would disqualify them from available public benefits. Instead, leaving a Supplemental Needs Trust as beneficiary of the retirement asset creates the best of all worlds: (1) optimal tax deferral and (2) protection of the disabled individual.


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