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How the SECURE Act Impacts Estate Plans

You may have heard about the SECURE Act, which went into effect on January 1 of this year. But you may not be quite sure what it means. This new federal law essentially changes the landscape for estate planning with retirement accounts. “SECURE” stands for Setting Every Community Up for Retirement Enhancement Act, and it is designed to implement new rules regarding payout of retirement accounts to the beneficiaries of a deceased participant.
Prior to the passage of the SECURE Act, designated beneficiaries of an inherited retirement account could take required minimum distributions from the account over the beneficiary’s life expectancy. This allowed the beneficiary to indefinitely continue the benefit of the account earning investment returns on a tax-deferred basis, because the beneficiary was permitted to “stretch” withdrawals out over their lifetime.
The SECURE Act eliminates the stretching of those withdrawals from inherited retirement accounts. Now, the account must be distributed in full within 10 years after the death of the plan participant. It will also limit the use of the lifetime stretch rules, with some modifications, to five classes of beneficiaries:

  • Participant’s surviving spouse
  • Minor children
  • Disabled beneficiaries
  • Chronically-ill individuals
  • Beneficiaries less than 10 years younger than the plan participant

The SECURE Act effectively changes how many current beneficiary designations can be implemented, along with the impact the designations have on the tax liability. This means some plan participants will lose a bit of control over the planning options available to them, and most beneficiaries will have to pay income tax – not only at higher rates but on an accelerated basis.

Other Impacts of the SECURE Act

Repeal of the maximum age for traditional IRA contributions:Before the new law went into effect, people could only make traditional IRA contributions until the age of 70½. Now, anyone of any age can make contributions to a traditional IRA provided they received earned compensation from wages or self-employment.
Required minimum distribution age increased from 70½ to 72: Before, retirement plan participants and IRA owners had to start taking required minimum distributions (RMDs) from their plan by April 1 of the year after the year they turned 70½. The 70½ age requirement, first implemented in the early 1960s, has not since been adjusted for increases in life expectancy. Now, that age is increased to 72.

What You Should Do Next

Anyone who has a retirement account should review their current beneficiary designations and estate planning documents, especially plans that involve trusts as retirement plan beneficiaries. If you take the time now to implement sound estate planning strategies, you can do your part to offset some of the impact posed by the new SECURE Act. If you are unsure about something or have questions, it’s wise to reach out to your trusted attorney who is skilled in all areas of estate planning.

Contact Sayer, Regan & Thayer for Estate Planning in Rhode Island

To get help understanding the SECURE Act as it pertains to your estate plan, contact us toll free at 866-378-5836 or 401-324-9915 for a free consultation.


These materials have been prepared by SRT for informational purposes only and are not intended and should not be construed as legal advice.

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