For professional advisors, your clients’ retirement accounts may represent a significant portion of their wealth. Retirement benefits are unique and warrant our attention as advisors for many reasons: asset protection purposes, timing income taxation on the distribution of these benefits to individual beneficiaries, and if directed to a trust, retirement benefits invoke a number of complicated rules.

Retirement plan benefits also open the door for a number of charitable planning techniques for clients who wish to support charity as part of their legacy.  

Over the past few years, major changes in tax law, including SECURE Act of 2019 and SECURE 2.0 Act of 2022, have reshaped the rules for planning for retirement benefits. With the release last year of final IRS regulations further clarifying the rules for inherited IRAs, it is more important than ever to understand how these changes impact your clients’ estate plans, their beneficiaries, and charitable planning strategies. 
 

Why the 10-Year Rule Matters 

A key change under the SECURE Act is the elimination of the "stretch IRA" for most non-spouse beneficiaries. In the past, heirs could spread required minimum distributions (RMDs) from an inherited IRA over their lifetime, reducing their annual tax burden, and allowing the account to grow tax-deferred. 

Now, most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA within 10 years of the original account holder’s passing. While this rule seems straightforward, new IRS guidance has added complexities: 

• Some beneficiaries must take RMDs each year within the 10-year window, rather than waiting until year 10 to withdraw the full amount.
• Failure to comply can trigger penalties of up to 25% on missed distributions.
• Exceptions exist for certain eligible designated beneficiaries, including surviving spouses, minor children, and individuals with disabilities. 

For heirs inheriting large retirement accounts, these changes portend adverse tax consequences, especially if withdrawals push them into a higher tax bracket.  

What This Means for Estate Planning  

Professional advisors are now recommending that their clients reassess their beneficiary designations and distribution strategies to align their objectives with the new regulatory landscape. The changes to retirement benefits underscore the importance of proactive planning to minimize tax burdens and preserve wealth across generations. For advisors of clients who are charitably inclined, consider the following charitable planning strategies for retirement assets. 

• Name a Charity as Beneficiary: If clients wish to leave funds to charity on death, consider testamentary transfers from retirement plans to charity which are tax-free, while preserving other assets with little or no income tax exposure for individual beneficiaries, avoiding the compressed timeline for distribution. 
• Consider Charitable Remainder Trusts: For clients looking to accomplish the “stretch IRA” for their beneficiaries, consider naming a tax-exempt charitable remainder trust (CRT) as a beneficiary of a retirement plan to achieve tax-advantaged distributions to individual beneficiaries over their lifetime or up to 20 years, with the remainder interest passing to charity. 
• Make Lifetime Charitable Gifts from RMDs. For clients who are already receiving RMDs from their IRA, they may use the distributed amount to make a gift to charity. 

• Make a Qualified Charitable Distribution (QCD).  Whether your clients itemize or take the standard deduction, consider a tax-free withdrawal from an IRA made directly to their favorite charity. In 2025, they can make a gift from their IRA up to $108,000, or they can take advantage of a one-time opportunity to fund a split-interest entity – CRT or CGA – up to $54K in 2025. 
   

Learn More at Our Upcoming Event

Understanding these changes is crucial for individuals with retirement assets and their professional advisors to make informed decisions about retirement assets. Join the Community Foundation for Southeast Michigan on May 1, 2025, at St. John’s Resort in Plymouth, Michigan, for a deep dive into charitable planning techniques for retirement benefits with Professor Christopher Hoyt, one of the nation’s leading experts in tax law and estate planning.  

 Seats for this event are limited, and registration closes April 17, 2025. Do not miss your chance to gain expert insights, connect with your peers, and ensure you are prepared for the retirement planning landscape of 2025 and beyond. 

• Event: Charitable Giving & Retirement Assets: Smart Moves for 2025
• Location: St. John’s Resort, Plymouth, MI 
• Register by April 17: Sign Up Here