This year, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) took effect. The SECURE Act makes several big changes that affect retirement accounts. Understanding the SECURE Act is imperative to ensure your estate plan is up to date and that your estate planning goals are accomplished.
Changes Under The SECURE Act
Positive changes include increasing the required beginning date (RBD) for required minimum distributions (RMDs) from individual retirement accounts from 70 ½ to 72 years of age, and eliminating the age restriction for contributions to qualified retirement accounts. However, the most significant change is that the SECURE Act requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death, eliminating the ability to stretch RMDs over a beneficiary’s life expectancy. This substantial change will impact most existing estate plans.
Old Standards vs. SECURE Act Standards
Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy. Under the new law, the account must be distributed within ten years, resulting in acceleration of income tax due and potentially causing your beneficiaries to be bumped into a higher income tax bracket, which means they will receive an amount significantly less than what was originally anticipated.
Exceptions to the ten-year withdrawal rule under the SECURE Act:
- Beneficiaries who are not more than ten years younger than the account owner;
- Account owner’s children who have not reached the “age of majority” (however, the 10-year rule does apply after the child reaches the age of majority);
- Disabled individuals; and
- Chronically ill individuals.
Why Review Your Estate Planning Goals?
Proper analysis of your estate planning goals and planning for your beneficiaries’ circumstances are imperative to ensure your goals are accomplished. Your estate planning goals likely include more than just tax considerations. You might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and losing an inheritance through a divorce. In order to protect your hard-earned retirement account and your loved ones, it is critical to act now.
If you have an existing estate plan, the provisions in your plan that relate to retirement accounts will likely need to be updated to reflect these recent changes in the law. This is also a good time to review your beneficiary designations on all retirement accounts and ensure these take in to account any recent life changes as well as the changes in the law.
Let Ball Morse Lowe Review, or Revise Your Documents
Although this new law may be changing the way we think about retirement accounts, we are here and prepared to help you properly plan for your family and protect your hard-earned retirement accounts. If you are interested in including charities as part of your estate plan, now is a good time to review your plan and possibly use a portion of your retirement accounts to provide for charities.
If you are concerned about the inheritance available to your beneficiaries due to the tax implications of the SECURE Act, we can investigate different strategies with your financial and tax advisors to ensure that your beneficiaries’ receive what you intended. Give us a call today to schedule an appointment and discuss how your estate plan and retirement accounts might be impacted by the SECURE Act.