SECURE Act Provisions Impact Estate Planning

In December of 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Aimed at making retirement planning accessible to more Americans, the Act triggered changes to IRA contributions and withdrawal schedules. But with regard to treatment of IRAs after the account holder’s death, the Act necessitates a review of estate plans to ensure that wishes will be followed as originally intended, and without triggering unintended negative consequences for beneficiaries.

The primary concern is the elimination of the “stretch” IRA. Before the new law, those who inherited an IRA could draw out the funds over their own lifetimes, thus stretching the deferral of income taxes until withdrawal. Beginning in 2020, all assets within an inherited IRA must be withdrawn by beneficiaries within ten years, with all associated taxes paid at withdrawal.

Certain exceptions to the new rule do exist: Spouses who inherit IRAs are not subject to the ten-year rule; nor are minor children or children who are disabled or chronically ill. When minor children reach age 18, the ten-year rule then applies (essentially requiring all withdrawals be made by age 28).

In the past, stretching out distributions from inherited IRAs essentially meant that beneficiaries could leave assets in the account to compound over time while deferring income taxes. Since all assets must now be withdrawn within ten years of the original account owner’s death, unless an exception applies, estate planning may need to be adjusted or rethought to address the changes to retirement planning under the new law. Without proactive planning, beneficiaries might face difficulties with regards to tax or financial planning.

In light of the changing law, which took effect January 1, all estate plans should be reviewed and necessary changes made. IRA owners should consider:

  • Beneficiary designations
  • Potential tax implications for beneficiaries
  • Revision of the will
  • The possibility of establishing a trust as beneficiary of IRA assets, or altering an existing trust

Given the broad scope of the SECURE Act and sweeping changes enacted by the law, certain other actions may be necessary with regard to planning for IRAs. Call our estate planning attorney for more information regarding the new legislation and its impact upon your particular circumstances.

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