The SECURE Act, which was effective January 1, 2020, is the most impactful legislation affecting retirement accounts in decades.
The SECURE Act has some positive changes: it increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72, and it eliminates the age restriction for contributions to qualified retirement accounts.
The SECURE Act also has a very significant change that will impact your retirement account beneficiaries: it requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.
There are exceptions to the ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals.
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 your beneficiaries to be bumped into a higher income tax bracket, and receiving less from your estate than you may have originally anticipated.
Your estate planning goals likely include more than just tax considerations. You might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and a divorcing spouse. In order to protect your hard-earned retirement account and the ones you love, a trust is a great tool to provide continued protection of a beneficiary’s inheritance.
Although this new law may be changing the way we think about retirement accounts, there are still some tools to minimize the impact of the accelerated income tax:
If you are charitably inclined, now may be the perfect time to review your planning and use your retirement account to fulfill these charitable desires, while providing a life time income to your beneficiaries through a Charitable Remainder Trust.
In past years when many estates were impacted by federal estate tax, a common technique was to purchase life insurance through an irrevocable trust to fund the tax payment. This technique can now be used to replace the inheritance lost to income tax acceleration.
We will be holding a presentation in our office on the impact of the SECURE ACT for our Maintenance Plan clients. If you would like information on joining our Maintenance Plan, please call our office at (770) 817-4999.
If you would like to schedule an appointment with one of our attorneys to review the impact of the SECURE Act on your beneficiaries, please call (770) 817-4999 to schedule that appointment.