On December 20, 2019, the president signed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) into law. The SECURE Act has made significant changes in the law and how Americans plan for retirement and eventually pass on their wealth to their heirs.
The passage of the SECURE Act serves as an opportunity to review the beneficiary designations on your retirement accounts. As the Secure act may who you wish to leave these assets to and may lead to your recalibrating of your entire estate plan.
Prior to the SECURE Act, the stretch IRA served as a life/estate planning strategy that prolonged the beneficial tax status of inherited IRAs to the beneficiary by allowing monies in the decedent’s IRA to be distributed over the expected lifetime of the beneficiary. This allowed for an extended deferral of taxes. This strategy has been severely affected by the SECURE Act, as the Act generally mandates that IRAs inherited by non-spouses be paid within 10 years of the plan holder’s date of death. The beneficiary could choose to take no distributions until the 10-year anniversary of the plan holder’s death, but that would mean that the entire inherited amount would be distributed at once. This may be enough to cause you to reexamine your plans, as unlike other gifts, IRAs come with a tax burden.
The new rules and limitations put in place also impact the distribution of inherited IRAs and can have significant tax impacts on beneficiaries. Taking the time to review your beneficiary designations to make sure they are still up to date post SECURE Act, is necessary to ensure your estate plan is up to date and still reflects your wishes.