On December 20th, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act, which became effective January 1, 2020, is the most impactful retirement legislation of the past decade.
The Good, the Bad, and the Ugly
The SECURE Act makes several positive changes: It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts.
The most significant change will affect the beneficiaries of your retirement accounts: The SECURE Act will require designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.
Under the old law, designated beneficiaries of inherited retirement accounts could take distributions over their own life expectancy, significantly growing the amount of money in the account. Under the new SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly bumping your beneficiaries into a higher income tax bracket causing them to receive less than you initially anticipated.
What Should You Do?
In order to protect your hard-earned retirement accounts and the ones you love, it is important to take action now. In addition to the tax considerations stemming from the SECURE Act, you might be concerned with protecting a beneficiary’s inheritance from their own creditors, future lawsuits, and a divorcing spouse.
Depending on the value of your retirement account, you may have allocated the distribution of your accounts in a revocable living trust (RLT) or created a standalone retirement trust (SRT) to handle your retirement accounts at your death.
Consider Additional Trusts
If you have not done so already, it may be beneficial for you to create a trust to handle your retirement accounts at your death. A trust is a great tool to address the potential downfalls to the new mandatory ten-year withdrawal rule under the SECURE Act and provide continued protection of a beneficiary’s inheritance.
Review Intended Beneficiaries
With the changes to the laws surrounding retirement accounts, now is a great time to review and confirm your retirement account information. Whichever estate planning strategy is appropriate for you, it is important that your beneficiary designation forms are filled out correctly and include a trust or individuals as your primary beneficiary, as well as contingent beneficiaries.
Who’s on your team?
Although this new law may be changing the way you think about retirement accounts, we are here and prepared to help you properly plan for your family and protect your hard-earned retirement accounts. Give us a call today to schedule a complimentary estate planning appointment to discuss how you may be impacted by the SECURE Act.