The Law Changed. Did Your Financial Plan?
The Law Changed. Did Your Financial Plan?
One of the greatest advantages of working with a knowledgeable financial advisor is their willingness to stay abreast of changes in the law and to bring them to your attention when appropriate. The tax code and retirement rules are constantly evolving, and missing key changes can be costly. In recent years, the SECURE Act, SECURE 2.0, and state-level updates have introduced a wave of new rules. Here are some recent changes that are among the most common to affect financial plans.
The IRA 10-Year Rule for Inherited Accounts
Under the old rules, if you inherited an IRA, you could "stretch" the distributions over your lifetime. Using the IRS life expectancy tables, owners of inherited IRAs could spread the distributions over their lifetimes, and thus pay less in taxes, which was especially advantageous for young beneficiaries. Under the new rules, most non-spouse beneficiaries must withdraw the funds (and pay taxes due) from an inherited IRA within 10 years of the original owner's death. According to the final ruling, starting in 2025, most non-spouse beneficiaries of IRAs must take Required Minimum Distributions (RMDs). Depending on the beneficiary's age, this amount is unlikely to deplete the account within 10 years. Working with a professional can help manage the decumulation of this account and help you decide if accelerating distributions would be beneficial within your overall financial plan. Keep in mind that surviving spouses, minor children, disabled individuals, chronically ill, and those within 10 years of the decedent's age are considered Eligible Designated Beneficiaries (EDBs) and still qualify for the lifetime stretch.
Non-Qualified Annuity Stretch Provisions
The stretch provision to non-spouse beneficiaries still remains for a non-qualified annuity. However, this election must be made when the beneficiary's account is established. The key difference in tax treatment between non-qualified annuities and traditional IRAs is that with the annuity, all the income is distributed first. So, if you inherit a $350,000 annuity with a cost basis (the amount paid for the annuity) of $140,000, the first $210,000 will be taxable as ordinary income. Inheriting a non-qualified annuity during peak earning years can push your income into a high tax bracket. For most beneficiaries, the stretch provision is the better option, but a fiduciary financial advisor can help you make that decision for your situation.
It's important to note that if the beneficiary of the non-qualified annuity is a trust, the five-year rule applies. The beneficiary must complete the distributions within five years rather than stretching the distribution over their lifetime.
If you own a non-qualified annuity and your estate plan designates a trust as the beneficiary, but you want your beneficiaries to take advantage of the stretch provision, talk to your financial advisor about changing the beneficiary designation.
Required Minimum Distribution (RMD) Age Changes
A common question pre-retirees when to start withdrawing money from their IRAs and other pre-tax retirement accounts. Under the old rules, the age was 70.5. The new RMD age increased to 73 for those born 1951-1959 and to 75 for those born in 1960 or later. Timing these distributions is important for tax planning and may present an opportunity to optimize withdrawals and minimize the lifetime tax burden. You can still make Qualified Charitable Distributions at age 70.5, under SECURE 2.0, and the 2026 limit increased to $111,000 per taxpayer (up from $108,000 in 2025).
Retirement Account Contribution Limit Increases and Plan Changes
Almost every year, the IRS increases the amounts that retirement plan participants can contribute to their plans to adjust for inflation. Click here for the current plan year contribution limits. In addition, several provisions in SECURE 2.0 created new special catch-up contribution rules for ages 60-63. Also, for high-wage earners (those who earned $150,000 or more based on prior-year wages), catch-up contributions must be classified as Roth.
Indiana 529 Tax Credit Updates
Indiana has one of the best 529 plans in the country for Indiana residents. Historically, the state offered a 20% tax credit for contributions up to $5,000. Beginning in tax year 2023, this tax credit limit increased to 20% of $7,500, allowing for a maximum credit of $1,500. Additionally, to conform with the One Big Beautiful Bill Act (OBBBA), Indiana increased the 529 qualified distribution amount for K-12 tuition paid for enrollment at an in-state school from $10,000 to $20,000 per beneficiary per taxable year in 2026. However, the tax credit recapture still applies for K-12 expenses other than tuition.
A new federal provision in the SECURE Act 2.0 permits rollovers of 529 balances into Roth IRAs. On January 5, 2026, Rep. Dave Hall introduced Indiana House Bill 1241 to align Indiana state law with the SECURE 2.0 Act. This bill would classify withdrawals from 529 plans for Roth contributions as qualified, meaning they would not be taxed. Although that bill did not pass this session, you can reach out to your state representative if you want to see that bill move forward next year.
What's Next?
If you learned anything from this post, consider sharing it with someone you know. Because law changes don't always make headline news, chances are that someone in your circle hasn't heard about all of these. This post only highlights common changes. There may be other issues your financial advisor may raise based on your situation. The right financial advisor can help you avoid costly mistakes and maximize savings opportunities. If you are currently not working with a financial advisor, consider scheduling a consultation to review your specific situation. Most financial advisors will not charge for the first meeting, and you'll get a sense of their knowledge and expertise. At the Hurlow Wealth Management Group, we help Midwest Millionaires find clarity, make decisions with confidence, and feel comfort in retirement. Call 812-333-4726 or click here to schedule.