SECURE Act Changes Retirement Benefit Rules

3/16/2020

On December 20, 2019 the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law. This new law went into effect on January 1, 2020. This new legislation includes changes that may affect your qualified retirement plans (such as a 401(k) or IRA) (“Retirement Assets”). If you have Retirement Assets, then it is important to understand how this new legislation may impact you.

Changes During the Account Owner’s Lifetime

One component of the SECURE Act that will affect many people during their lives is a change in the age at which a person must begin taking distributions from Retirement Assets. The new legislation increases the age at which a person must start taking required minimum distributions (RMDs) from retirement accounts from age 70½ to age 72 for individuals who reach age 70½ on or after January 1, 2020. The SECURE Act also removes the age cap for funding traditional (non-Roth) IRAs, meaning that individuals over the age of 70½ are now eligible to make contributions to a traditional IRA.

Changes for Beneficiaries After the Account Owner’s Death

The most important change brought about by the SECURE Act provides that most non-spouse, adult beneficiaries of Retirement Assets will need to withdraw the assets from an inherited retirement plan within 10 years of the death of the account owner. Under the prior law, most individual beneficiaries had the ability to stretch the distributions of inherited Retirement Assets over the life expectancy of the beneficiary. The new 10-year timeframe under the SECURE Act could result in significant negative income tax consequences for beneficiaries. The SECURE Act provides limited exceptions to the 10-year payout rule for beneficiaries who are: surviving spouses, minor children of the plan participant, disabled beneficiaries, chronically ill beneficiaries, and beneficiaries who are less than ten years younger than the plan participant.

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The SECURE Act introduces a host of new considerations that we must take into account in structuring your estate plan to maximize the benefit of your Retirement Assets and best protect your beneficiaries. Congress gave us very little warning that these changes were on the horizon. Accordingly, estate plans that, through the end of 2019, offered a sound approach to planning for Retirement Assets may no longer provide the best protection of your Retirement Assets. In particular, all trusts that are intended to receive Retirement Assets should be reviewed to make sure that the trusts will comply with the new statute.

If you have Retirement Assets, this new legislation may impact your estate plan. We recommend that you contact your Drew & Cohen, P.C. estate planning attorney to schedule a time to meet to review your estate plan.