How the SECURE Act Changes Estate Planning

As you are preparing for your family’s financial future, you must not only look at your ongoing retirement contributions, but any inheritance that you may receive from parents and other family members. Some families and individuals have relied on so-called “stretch IRAs” as a way to pass on IRAs from generation to generation. This strategy worked well, as it allowed families to capitalize on tax-deferred and tax-free growth.

That said, there has been a recent piece of federal legislation that changed this practice (among others) in estate planning. It is called the Setting Every Community Up For Retirement Enhancement (“SECURE”) Act and it was passed in December 2019. At TI-TRUST, we have been closely monitoring the SECURE Act and the ramifications that it has on estate planning. You will find some of our insights on the SECURE Act below.

Key Takeaways from the SECURE Act

One of the most notable takeaways from the SECURE Act is that it largely eliminates the stretch IRA benefits. This is because Congress wanted to find a way to offset the revenue loss from increasing the Required Minimum Distributions (“RMDs”) age from 70.5 to 72. Ultimately, the SECURE Act implemented a new rule where an inherited IRA must be paid out in years rather than over a lifetime.

The rule applies to decedents that die starting this year. That said, there are some exceptions that let designated beneficiaries have permitted distribution periods for longer than ten years. Some of those beneficiaries include surviving spouses, minor children, disabled beneficiaries, chronically ill individuals, and beneficiaries less than ten years younger than the account owner. Ultimately, if you believe that any of these categories applies to you, please contact us or your estate planning attorney.

Along with the elimination of the stretch IRA, the SECURE Act includes several important provisions. First, it liberalizes retirement plan rules for small employers (like more relaxed rules on employers that offer annuities in their sponsored retirement plans). The Act removes the old maximum age limit (formerly at 70.5) for traditional IRA contributions and permits withdrawals of up to $10,000 from 529 plan money to repay student loans. Notably, this $10,000 is a lifetime cap, not a per year cap.

To Learn More

These are just some of the key provisions within the SECURE Act. Whether you are in the early stages of estate planning or intended to rely on a stretch IRA in the future, we encourage you to contact us with any questions or queries. We look forward to hearing from you.