Like many retirees or soon-to-be retirees, you’re probably hoping to pass on a little financial cushion for your heirs. But what you’re not planning to pass on—tax liability—could sneak in there anyway. That’s because without IRA tax planning, you might inadvertently leave that burden to your heirs. With recently passed legislation and proposed changes that could come down the pike soon, it’s more important than ever to have a tax plan. Here are two things that could affect you:

1. Losing the Stretch IRA

A stretch IRA is a strategy—not a type of account—that’s used by non-spouse beneficiaries who inherit an IRA. The term “stretch” comes from the idea that you’re stretching out the life of the account, along with its tax advantages. You’re allowing it to keep growing tax-free (or tax-deferred) so it can be passed from one generation to the next. The heir would still need to take required minimum distributions, but if they’re relatively young, the amount they’d have to withdraw each year wouldn’t be too high because the formula for RMDs is based on life expectancy. If the heir received a Roth IRA, even better. They could stretch out the distributions generally tax-free.

Lawmakers were concerned that the stretch IRA strategy was being used to shelter money, so at the end of 2019, Congress essentially ended the stretch IRA in the SECURE Act. Now, non-spouse beneficiaries who inherit an IRA after December 31, 2019 will have to withdraw all the funds within 10 years of the original account owner’s death. Since traditional IRA distributions are taxed as ordinary income, that could spell a big tax liability for your heirs, especially if they’re in their peak earning years and the highest tax bracket of their lives. That’s what we call the Kiddo’s Penalty.

2. Potential Marginal Tax Rate Increases

While we can’t be sure what your heirs’ tax rate may be in the future, we know what the tax rates are now, and that they aren’t likely to go down.

The 2017 Tax Cuts and Jobs Act changed the income tax brackets in the U.S. tax code, reducing the tax burden for many. Earlier this year, House Democrats proposed legislation that would bump the top marginal tax rate to 39.6% from the current 37%, and it’s not the only proposal of its kind. But even if Congress doesn’t pass legislation increasing marginal tax rates, it will happen on its own. Many of the benefits of the Tax Cuts and Jobs Act expire by 2025, meaning income tax brackets will return to their previous levels if not extended.

So, what can you do? It may make sense to act now to reduce tax implications down the line for your beneficiaries. One way to do that is to execute a Roth conversion. Yes, you would have to pay taxes on the amount converted but remember, current tax rates are historically low. It’s possible we could see a tax increase under the Biden administration that would make this strategy less advantageous in the not-too-distant future. Another consideration is that while Roth IRAs are still subject to the 10-year distribution rule, the money won’t count as taxable income for your beneficiaries.

Before you put either of these tips to work for you, it’s important to consult with a tax expert who can determine the best course of action for your individual situation. Tax codes can be complicated; as you saw above, a misstep could cost you dearly. So, when it comes to tax planning, it’s a good idea to leave it the pros. Thankfully, we have tax experts on staff to make creating your own personalized tax plan totally painless, and a team who can assemble your simple tax returns for you. And it’s all just a phone call or email away.