In December 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act became effective on January 1, 2020, and makes significant changes to retirement accounts, including Individual Retirement Accounts (IRAs), 401(k), 403(b) and 457
plans (“Retirement Plans”). The following is a brief summary of the key changes:
- The beginning age for taking required minimum distributions (RMDs) changed from 70 1/2 to 72.
- You can now contribute to your traditional IRA past the age of 70 1/2 if you are still working.
- Many Retirement Plans will now need to be cleaned out within 10 years of the death of the plan owner. Exceptions include lifetime payouts for surviving spouses, disabled or chronically ill beneficiaries, minor children until they reach age 18, and beneficiaries who are less than 10 years younger than the decedent.
These changes may affect your estate plans, so we encourage you to review your current beneficiary designations on your Retirement Plans. Prior to the SECURE Act, a child could inherit a parent’s Retirement Plan and stretch the withdrawals over the child’s life expectancy. This allowed the income tax liability to be deferred over the child’s lifetime. If the inherited Retirement Plan was held in trust, it also offered additional asset protection for the child. Now, since the Retirement Plan must be completely withdrawn within 10 years, the income tax will also need to be paid within the 10-year withdrawal period. Without additional planning, the Retirement Plan balance may be available to
the child’s creditors (including ex-spouses if a divorce occurs) once the account is withdrawn.
We recommend contacting our office, or your tax or financial advisor, to discuss any questions or concerns. We also encourage you to follow the McCarty Law blog and sign up for our newsletter below, as we will be providing updates on the SECURE Act as the IRS issues additional guidance.
Thank you for your continued confidence in our estate planning services.
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