Finance industry analysts and estate planners alike were surprised by the late December passage of the Setting Every Community Up for Retirement Enhancement, i.e. the SECURE Act. The Act goes into effect January 1, 2020, and is the most impactful retirement legislation of the past decade. The Act includes a number of changes, but here are the standouts:
Increased age for required minimum distributions, “RMDs,” from retirement accounts from 70 ½ to 72 years of age.
Non-spouse beneficiaries (other than an account holder’s minor child) of traditional IRAs and 401ks will now be required to withdraw the balance of the account within 10 years. This eliminates the “stretch” option for non-spouse designated beneficiaries who inherit a retirement account.
Beneficiaries of traditional IRAs and 401ks who are both minors and children of the account holder must withdraw the balance of the account within 10 years of the date they reach the “age of majority.”
These changes may have significant implications for your estate planning, including the following:
If your Trust or your Estate is a beneficiary of your traditional IRA or 401k, it may make sense to change this to an individual beneficiary instead.
It may make sense to add additional beneficiaries to your traditional IRAs and 401ks rather than make gifts to those individuals through your Will or Trust.
This is by no means an attempt to cover every provision of the Act, which can be read in its entirety here. If you have questions about how the Secure Act impacts your estate plan, email Amanda at hello@bequest.law and set up a time to talk to Kristen!
1. If a beneficiary is not considered a designated beneficiary, distributions must be taken by the fifth year following the account owner’s death. Common examples of beneficiaries that are not designated beneficiaries are charities and estates. See Treas. Reg. § 1.401(a)(9)-3, Q&A (4)(a)(2) and 1.401(a)(9)-5, Q&A (5)(b).
2. This is not true for Roth IRAs, and in many cases, it may make sense to convert your traditional IRA to a Roth IRA in light of the new rules. Please plan to speak to a financial advisor about pros and cons of conversion.