In December 2019, President Trump signed a two-part bill that funds the federal government through 2020. Among the many parts of this bill is the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act results in major changes to rules related to individual and employer-sponsored retirement accounts and will likely result in many estate plans being substantially altered to incorporate retirement accounts. This article reviews some of the biggest changes that you should understand about the SECURE Act and how it might impact your existing estate plans.
# 1 – Required Minimum Distribution Now Begin at 72
Before the SECURE Act, traditional IRAs and employer-sponsored plans were subject to Required Minimum Distribution Rules. Distributions from these plans often must begin by April 1 of the year after either the participant turns 70 and a half or the year in which the participant retires. Under the SECURE Act, distributions must be made after the participant turns 72 provided the individual has not reached the age of 70 and a half by December 31, 2019. This change allows people who do not require funds from their IRAs or retirement accounts to achieve an additional period of tax-deferred growth.
# 2 – Repeal of Maximum Age for Traditional IRA Contributions
Current estate planning law states that only taxpayers under the age of 70 and a half with earned income can contribute to traditional IRAs. The SECURE Act, however, repeals the maximum age limitations which makes IRAs similar to other types of retirement accounts. For people who work past the age of 70 and a half, this repeal presents an additional method of tax-deferred saving. Higher earning individuals still do not qualify for income tax deductions on contributions to traditional IRAs. Repealing a maximum age, however, allows higher earners past the age of 70 and a half to make non-deductible contributions to traditional IRAs and then convert the nondeductible contributions to Roth IRAs.
# 3 – Elimination of Stretch Required Monthly Distribution Provision
Existing law states that certain designated beneficiaries of inherited IRAs and other eligible requirement accounts can use the account beneficiary’s life expectancy. If a beneficiary is considerably younger than the deceased account owner, required withdrawals can be stretched for many years. Under the new law, however, stretch options are removed. Instead, certain beneficiaries are required to withdraw all assets within 10 years of inheriting the account. Eliminating the ability to stretch accounts will substantially impact estate plans incorporating pass-through trusts for younger beneficiaries. Without stretch provisions, younger trust beneficiaries with retirement accounts can end up bearing a tax burden incompatible with their trust ownership.
Speak with a Knowledgeable Estate Planning Attorney
The SECURE Act is just one of the many complex areas about estate planning that you will be required to navigate in 2020. If you need the assistance of a lawyer to make sure that you have the strongest estate plan possible, do not hesitate to contact attorney Jim A Lyon today to schedule a free case evaluation.