How Does the Recent SECURE Act Affect Your Estate Plan?

On December 20, 2019, President Trump signed the Setting Every Community Up For Retirement Enhancement Act of 2019, better known as the SECURE ACT, into law. The law goes into effect on January 1, 2020 and it makes significant changes to retirement accounts. Here are some of the bigger changes.

Increased RMD Age

Under the old rules, individuals were required to start taking minimum required distributions age 70 ½. The new rule pushes the RMD start date back to age 72.

Repeal of Age Cap for Traditional IRA Contributions

The prior rules prohibited IRA contributions after age 70 ½. Now individuals can continue to make contributions to their retirement accounts after that old cutoff.

No More “Stretch” IRA

The provision with the biggest impact on your estate plan is the elimination of “stretch” IRA disbursements. Under the old rules, a non-spouse who inherited an IRA could stretch out those disbursements (and the associated income tax burden) from the IRA over their lifetimes. The new law scraps that option, replacing it with a blanket 10-year rule. This new rule holds that a non-spouse who inherits an IRA has to distribute the entirety of the IRA within 10 years (with some exceptions). Generally speaking, out the IRA over 10 years results in a bigger tax liability than stretching distributions over a beneficiary’s lifetime.

In the course of drafting a comprehensive estate plan, we often recommend modifying beneficiary designations for our clients’ IRAs to take advantage of gifts made in trust. Those designations need to be evaluated to make sure they don’t create unintended tax consequences for your beneficiaries.

Conclusion

In light of these changes, you should review the beneficiary designations and consider whether they are appropriate. In particular, if a trust is named as the beneficiary of your retirement accounts we can review your existing estate planning documents to determine whether the designation should be changed or your trust revised.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, specific tax, legal or accounting advice. We can only give specific advice upon consulting directly with you and reviewing your exact situation.