The Secure Act: How it may affect you.
On January 1, 2020, the SECURE Act (Setting Every Community Up for Retirement Enhancement) went into effect. The bill is the most significant reform to retirement legislation in decades and dramatically changes how your IRA and retirement benefits are treated post-death. Among other things the Act now increases the required beginning date for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 and eliminates the age restriction for contributions to qualified retirement accounts. One of the most significant changes under the Secure Act is the change to the Stretch Out provision for inherited IRA's. Under the new law, which became effective January 1, 2020 for decedents dying on or after January 1, 2020, the beneficiary of an IRA will, in most circumstances, be required to take all distributions from the IRA within 10 years of the account owner's death, subjecting all of those assets to income tax at the time of withdrawal and thereby eliminating the Stretch provision. However, there are exceptions for certain categories of beneficiaries including a surviving spouse, a minor child, a disabled or chronically ill beneficiary, or a beneficiary who is not more than 10 years younger than the account owner. Those trusts which have provisions for a Conduit Trust are also impacted by the Secure Act. IRA account owners who wanted to control distributions to heirs following their death may have designated a trust as the beneficiary of an IRA. This strategy could address the concern of passing significant wealth too quickly to a young beneficiary. Now under the Secure Act if you there is an ineligible beneficiary the IRA will have to be distributed within 10 years.
In light of the Secure Act almost everyone should have their Estate Plan reviewed to determine if it is impacted by the Secure Act.