What Is the SECURE Act?
The SECURE Act, signed into law on December 20th, stands for Setting Every Community Up for Retirement Enhancement. It includes many provisions aimed at increasing access to workplace plans and expanding retirement savings. Some of its provisions include:
• Allowing individuals to continue contributing to a traditional IRA account regardless of age.
• Making 72 the age in which mandatory retirement distributions kick in.
• Allowing part-time workers participation in a 401(k) plan if they are employed long-term.
• Allowing withdraws from a retirement plan without penalties if for a birth or adoption.
IRA Distribution Changes in SECURE Act
The SECURE Act also makes big changes to inherited IRA distributions. Prior to this law, IRA accounts could be stretched out over many beneficiaries’ lifetimes. However, the SECURE Act puts an end to the stretch IRA by capping the timeline for distribution at 10 years.
This means that under the SECURE Act, fewer beneficiaries who inherit an IRA account in 2020 will be able to extend its distributions over their lifetimes. Many will have to withdraw their inherited assets within 10 years of the original IRA owner’s death. However, there are exceptions to this change. People who will not have to wind down an IRA account within 10 years includes beneficiaries such as:
• A surviving spouse
• A minor child
• A disabled individual
• A chronically ill individual
• Beneficiaries less than 10 years younger than the original IRA owner
While some of your beneficiaries may fall under the above exemptions, those who do not will have a shorter window of time to draw down their assets. Additionally, these non-exempt beneficiaries cannot defer income tax on the IRA past the 10-year limit.
How the SECURE Act Will Affect Your Estate Planning
Changes to inherited IRA distributions should prompt many to reassess estate plans previously devised to stretch an IRA account. Many of the benefits of such planning are likely to be ineffective under the SECURE Act. Contact our estate planning lawyers in California to learn more about the following revisions:
• Reconsider beneficiary designations. For example, you may want to reassess designated beneficiaries. Naming a spouse the primary beneficiary of an IRA account will allow that spouse to stretch the IRA. This person can later pass the amount on to children, thus deferring the 10-year countdown.
• Split primary beneficiaries. Splitting primary beneficiaries may save money on income taxes owed. While a non-exempt beneficiary will start taking distributions over a 10-year period, the split will reduce the amount owed in taxes on these distributions.
• Revise your conduit trust. Drafting a conduit trust was beneficial for taking advantage of a stretch IRA. However, the SECURE Act may eliminate your need for this kind of trust.
Prepare for the SECURE Act With Trusted Estate Planning Lawyers in California
Estate plans designed prior to the SECURE Act will likely need revisiting. If your estate plan depends upon the stretch IRA or maximizing income tax deferments, speak with one of our attorneys today. We can help you make the revisions you need to reach your estate planning goals. To learn more, give us a call at (510) 527-6774 or fill out our online contact form.