As a surprise to most financial professionals across the country, the SECURE Act (Setting Every Community Up for Retirement Enhancement) has been approved by Congress following its last-minute inclusion into a bipartisan appropriations bill that would avert a government shutdown before the end of the year. The law is set to take effect on January 1, 2020.
Here at our firm, we’ve kept a very close eye on this legislation for the past year, as it will have a significant impact on the retirement plans owned by many of our clients. The following are highlights from the bill that we want you to know about.
Say Goodbye to “Stretch IRAs”
This new law will soon do away with the concept of the “Stretch IRA,” which allows younger beneficiaries to take small required minimum distributions over their lifetime, while “stretching” the tax-deferred growth of the IRA over decades.
IRA funds passed to beneficiaries will now have to be withdrawn within 10 years of the death of the original holder and would be subject to taxes much sooner than your children or grandchildren may have been expecting. Of course, this provision does not apply to spouses who still receive more favorable treatment under the law.
New Age Requirements
The SECURE Act now allows those who work past age 70.5 to contribute to IRAs, matching the rules for 401(k)s and Roth IRAs. The bill also pushes back the date to start Required Minimum Distributions (RMDs) to age 72 for those who did not reach age 70.5 by the end of 2019. This specific change will lower the amount of money that seniors will need to withdraw each year during their retirement.
Trusts Will Likely Need to Be Updated
If you have a trust, the SECURE Act may require an update to your legal documents. For some, this new legislation will create unintended tax consequences and even significant tax hikes for heirs. It may be necessary to look at alternative planning strategies in light of these changes. More generally, the language in many trusts will need to be updated in order to be compliant with the new laws. Again, if this is not done, existing trust language could unintentionally restrict access to your beneficiaries’ funds and cause major tax headaches.
I Have a Retirement Account… What Should I do?
Start by calling our office at (203) 877-7511 and scheduling an appointment with us. Let us know that you have a retirement account that you plan to leave to your loved ones and you want to take a fresh look at your planning. From there, we can help you determine if your plan still meets your needs or if there are adjustments that should be made in light of these changes to the law. Be sure to mention this article when you call so that we can bring you in as soon as possible.
