When you plan how to distribute your inheritance, you try to save your heirs as much in taxes as possible. You use many different strategies to avoid losing your money to the government. But with the passing of a new act, one strategy may no longer work for you.

The SECURE – Setting Every Community Up for Retirement Enhancement – Act changed the rules for how you can stretch out distribution of your retirement funds. You may need to update your plan if the act limits your heirs’ tax savings.

Stretch IRAs would protect investment accounts from taxes

Before the SECURE Act, you could use an individual retirement account, or IRA, to avoid taxes. If you made someone young a beneficiary, like your grandchild, you could stretch distribution out for their lifetime. The account manager would calculate the minimum payment based on your grandchild’s age and life expectancy.

By receiving small payments over several years, your heir could avoid paying high taxes on the total value of your IRA. And he or she would also avoid the capital gains tax usually associated with investment accounts.

The SECURE Act limits the stretch

However, with the new act, you can only stretch distribution out for 10 years. Your heir may have a much higher payment. And he or she must receive the total of your IRA within 10 years, paying more taxes on the higher distributions.

A change to tax law may require a different strategy

When tax law changes, you may want to review and update your estate plan. If your current strategy doesn’t help you save taxes as effectively, you can work with your attorney or financial planner to create a new tactic.

By updating your plan, you ensure that your heirs can avoid hefty taxes and keep your inheritance intact.