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The SECURE Act Has Changed the Rules for Retirement Benefits

On December 31, 2019, the “SECURE Act” became law. If you have a qualifying retirement plan or a traditional IRA or Roth IRA, the SECURE Act has already changed the rules for those accounts. If you have a retirement plan maintained pursuant to a collective bargaining agreement or a 414(d) governmental plan, the SECURE Act will impact those plans on December 31, 2021.

What Does the SECURE Act Do?

The SECURE Act has significantly changed the inheritance landscape for your “designated beneficiaries”—the beneficiaries you named to inherit your retirement benefits. When you filled out forms at work naming your son as the beneficiary of your employer-sponsored 401(k), or completed a form for your financial advisor naming your daughter as the beneficiary of your traditional IRA, for example, you made that son or daughter a “designated beneficiary.”

Before the SECURE Act, your designated beneficiary could potentially withdraw inherited retirement benefits throughout their lifetime. Now, your designated beneficiary will be required to take those retirement benefits no later than December 31st of the 10th year after your death. The new 10-year rule particularly changes the landscape for tax-deferred retirement assets. Your designated beneficiary will now get only 10 additional years of tax-free growth on assets such as 401(k)s and traditional IRAs, and by the end of the 10 years, your designated beneficiary must pay any deferred taxes.

Five Types of Eligible Designated Beneficiaries

The SECURE Act has also created a new group of five types of beneficiaries called “eligible designated beneficiaries.” Four types of eligible designated beneficiaries—surviving spouses, disabled beneficiaries, chronically ill beneficiaries, and beneficiaries fewer than 10 years younger than the previous retirement benefit owner—still have the opportunity to withdraw inherited retirement benefits throughout their lifetime. The fifth group—minor children of the plan participant—must take inherited retirement benefits within 10 years after the child reaches the age of majority in their state of residence.

Will the SECURE Act Affect Your Estate Plan?

If you have a qualified retirement plan, or a traditional or Roth IRA, you should carefully consider the impact of the SECURE Act on your estate plan. Your estate plan may require modification if, for example, your retirement benefits are payable to a trust, or if you have concerns regarding your designated beneficiaries obtaining the entirety of your retirement assets within 10 years. Additionally, certain steps may be advisable if you are administering the estate of someone who died in 2019 and left retirement benefits.

The SECURE Act also contains changes worth discussing with your financial advisor or accountant, including an increase to the age of first Required Minimum Distributions (RMDs) from 70 ½ to 72 if you have not yet begun to take distributions, and the elimination of the age cap on contributions for traditional IRAs beginning in the 2020 tax year.

For more information on the SECURE Act, or to address any of your estate planning, probate litigation, trust and estate administration, or elder law needs, contact: