Financial Advisor: Ask the Expert: Q&A with Dan Palm

With the recent changes in IRA and tax laws, EnCompass asked Denver-based financial advisor with Baird Private Wealth Management, Dan Palm, to clarify.

Q: What is the SECURE Act, and what are its biggest effects?

Dan: While the SECURE Act does have some impact on retirement account owners in the form of delaying RMDs to age 72 and removing the age cap on IRA contributions, we feel the most impactful changes will be to beneficiaries of retirement accounts for anyone who passes away after 2019. Beneficiaries used to have their entire lifetimes to deplete IRAs but now will be required to do so within 10 years.

Q: But isn’t 10 years still quite a long time? Why is that a problem for someone who has inherited an IRA?

Dan: Well, assuming someone inherits a traditional IRA during her peak earning years, that could bump them into a higher tax bracket. That negates the primary benefit of an IRA or other tax-deferred account, which is to receive distributions in retirement, when income is theoretically lower.

Q: What should anyone with an IRA do now?

Dan: Traditional IRA owners should be looking at their current tax situation, while at the same time considering the projected tax situation of their beneficiaries. Tax deferral can be great, but deferring taxes now for someone to pay high rates later doesn’t make a lot of sense.

One strategy to consider is a Roth conversion. Owners of traditional IRAs may want to seriously consider converting them to a Roth IRA. That has the dual benefits of allowing beneficiaries to receive income—tax-free—over 10 years and reduces the taxable income of the owner, which can impact Medicare premiums.

Pro Tip

If you want your retirement account assets to flow through trusts, discuss your options with a financial advisor and your estate planning attorney.

Dan Palm is a financial advisor with The Palm Group at Baird