Is your estate and retirement plan secure after the passing of the SECURE Act? In December 2019, the Senate passed, and the President signed the “Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”). The lofty name hides an important and significant change to the distribution rules for retirement accounts.
One of the most troublesome provisions of the SECURE Act is the elimination of the Stretch IRA for certain beneficiaries.
Prior Law: Before January 2020, when an owner of an IRA died, the beneficiary could “stretch out” the minimum required distributions from the plan over the expected lifetime of the beneficiary. For a very young beneficiary, this meant small required distributions with the potential for the account to grow significantly over time. With proper planning, a retirement account could last several generations, or to infinity, with each successive generation taking minimum distributions and the account growing exponentially.
Current Law: Now under the SECURE Act, unless you are an “eligible designated beneficiary” (a surviving spouse, disabled individual, beneficiary less than 10 years younger than the owner of the account and minor beneficiaries until they reach the age of majority) the IRA balance must be completely distributed to a beneficiary or beneficiaries within 10 years, causing many individuals to face large distributions with larger income tax liabilities.
Elimination of the stretch IRA may create substantial problems for clients who have formed IRA trusts (see-through trusts, conduit trusts and accumulation trusts) prior to the SECURE Act resulting in possible restrictions in accessing funds to heirs and greater tax liability to heirs.
Clients should review their retirement, estate and trust plans in light of the SECURE Act. Please contact us to discuss how we can help make sure your retirement, estate and trust plan is secure. Please call 410-442-1088 to set up an appointment with one of our estate planning attorneys.