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Alert! Estate plan rules for retirement assets have changed

On Behalf of | Jan 18, 2023 | ESTATE PLANNING - Estate Administration & Probate

Beneficiaries in California and throughout the country will want to update themselves on new rules that apply to assets acquired as inheritance through retirement benefits. Such benefits include Individual Retirement Accounts (IRAs), as well as programs, such as 401(k)s. In 2020, new estate plan rules were added to the books, which pertain to mandatory payouts within 10 years.  

In the past, a beneficiary who inherited assets from a retirement account was required to request a full payout of funds within 10 years. Now, however, beneficiaries who fall under certain categories are exempt from mandatory payout rules. Anyone named as a beneficiary to an inheritance associated with a retirement account will want to check whether he or she is in an exempted category.  

These 5 beneficiaries are exempt from mandatory payouts 

There are five categories of beneficiaries who are no longer required to withdraw funds from a retirement account within 10 years of receiving an inheritance: 

  • A person who is not more than a decade younger than the decedent 
  • A minor 
  • A surviving spouse 
  • A beneficiary with a disability 
  • A beneficiary with a chronic illness 

If a beneficiary does not fit one of these categories, then he or she is still required by law to withdraw assets inherited from a retirement account within a certain amount of time, which may have significant tax implications.  

Questions regarding estate plan rules for retirement benefits 

An adult in California who wishes to spare a future beneficiary of a heavy tax burden may want to explore options for withdrawing funds from a retirement account and using them to purchase life insurance. It is always a good idea to consult with an experienced estate law attorney before executing a plan or making changes to an existing one.