There’s been quite a bit of buzz in the news recently about the Setting Every Community Up for Retirement Enhancement (SECURE) Act that was just signed by the President. Specifically, our clients are hearing that it could negatively affect them and their retirement plans, retirement plan trusts, and IRA Inheritance Trusts™.
There is a lot to unpack here, but we want to assure you that while the SECURE Act changes retirement planning, specifically with how retirement accounts are taxed and affects required minimum distributions, it is not all bad. And there are still ways to protect everything you own and love.
Let’s discuss a few of the changes associated with this major law.
The SECURE Act Retirement Planning Changes
The reality is that not a lot of Americans are prepared for retirement. The SECURE Act is the largest piece of retirement legislation in a long time and includes significant provisions designed to give more access to tax-advantaged accounts while also preventing older Americans from outliving their assets. The bill also adjusts long-standing rules related to tax-advantaged retirement accounts. Here are just a few of the changes that stand out:
- The age for required minimum distributions (RMDs) has been pushed back from 70 1/2 to 72
- Because of the age change to 72, you have more time to do Roth IRA conversions
- Many older individuals will now have the ability to contribute to a tax-deductible IRA after 70 1/2 and save for the future
- Retirement plans for small-business owners who want them for employees are less expensive and easier to manage
- Many part-time workers are now eligible for employer retirement plans
- The bill expands what 529 college savings accounts can be used for, allowing for more flexibility
What everyone is concerned about is how the SECURE Act will affect their estate planning strategy.
The biggest talking point is that the SECURE Act has removed the “stretch” provision for beneficiaries of IRAs and things like 401(k)s. Under the old law, the beneficiary could stretch out the RMDs over his or her own life—which could be a very long time if the beneficiary is considerably younger. Under the new bill, your heirs might have to do a full distribution within 10 years of the owner’s (your) death.
This change does not apply to all beneficiaries, specifically, surviving spouses, minors, disabled individuals, the chronically ill, and beneficiaries not more than 10 years younger than the owner. But for those who don’t fall into any of those categories, it does create significant tax consequences.
There are also concerns over the impact to trusts, especially those that have been named the beneficiary of an IRA.
Estate Planning Will Always Require Proactive Planning
The reality in life is that nothing stays the same, and changes to long-standing laws and tax-planning equations are no different. At Leigh Hilton PLLC, we constantly emphasize the importance of proactive estate planning and ensuring that the documents you do have in place are reviewed frequently to include language that aligns with your long-term goals.
We will be holding several free seminars regarding strategies to minimize taxes and replace the stretch-out that was allowed under the former law. We will also educate you and your family on how the SECURE Act affects you, your retirement plans, retirement plan trusts, and IRA Inheritance Trusts. Please call us anytime. Leigh Hilton PLLC wants to be your first call every time for any estate planning need.