The SECURE Act
On December 20, 2019, President Trump signed the “Setting Every Community Up for Retirement Enhancement” Act (SECURE Act), which was effective January 1, 2020. The Act is the most impactful legislation affecting retirement accounts in decades. The SECURE Act has several positive changes: it increases the required beginning date (RBD) for required minimum distributions (RMDs) from individual retirement accounts from 70½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts. However, perhaps the most significant change will affect the beneficiaries of your retirement accounts: instead of allowing beneficiaries of inherited IRAs to “stretch out” the withdrawals from the IRA over their lifetimes, the SECURE Act requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.
Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy. Under the SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly causing beneficiaries to be bumped into a higher income tax bracket, thus receiving less of the funds contained in the retirement account than originally anticipated. NOTE: this new ten-year withdrawal mandate has nothing to do with whether a trust is the designated beneficiary, or whether the individuals themselves are the designated beneficiaries.
In light of the SECURE Act, asset protection and tax reduction goals will need to be reviewed. Factors such as the age of the beneficiaries and the value of the accounts will need to be considered. Over the next few years, we are likely to see guidance from the IRS in the form of TAMs and eventually new regulations. We may also see some tweaking of the law from Congress.
Unfortunately, there isn’t a “one size fits all” answer to the SECURE Act. Anyone with retirement accounts will need to educate themselves on its tax impact. To meet this educational need, we are preparing to offer a number of educational offerings over the next few months and beyond. You can help shape our offerings by completing our SECURE Act Survey.