Secure Act: What Everyone Should Know About the Recent Retirement Legislation

What is it?

In December of 2019, President Trump signed into effect the new Setting Every Community Up for Retirement Enhancement Act, otherwise known as the SECURE Act.  The SECURE Act, which became effective as of January 1, 2020, is one of the most important retirement laws passed in more than a decade.

Who does it Affect?

While the SECURE Act has numerous components, the substantial changes under the Act include but are not limited to, increasing the age for required minimum distributions (RDMs) from retirement accounts from 70 ½ to 72 years; elimination of the age limit for contributions to traditional individual retirement accounts (IRAs); expansion of the permissible uses of 529 accounts; increases in annuity options; creation of a new exemption which allows penalty-free withdrawals in amounts of up to $5,000 from retirement accounts for birth or adoption of children; and the elimination of the “stretch” IRA for most non-spouse beneficiaries, forcing certain non-spouse beneficiaries to withdraw inherited amounts within 10 years of the account owner’s death. 

The elimination of stretch IRAs is incredibly important for individuals planning their estates as most non-spouse beneficiaries will no longer be able to stretch their RMDs or inherited retirement accounts over their life expectancy.  Fortunately, the SECURE Act provides additional exceptions to the newly enacted ten-year mandatory withdrawal rule.  Under the new rule, spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the age of majority, disabled individuals, and chronically ill individuals are permitted to benefit from the “stretch” withdrawal rules which were in place prior to the December 2019 enactment of the SECURE Act. 

What Should You Do?

Individuals who believe they will be effected by the SECURE Act should consult legal counsel to determine if their present estate plan is adequate to safeguard their assets.  By way of example, individuals who have conduit trust provisions in their estate planning documents may want to reassess the inclusion of their provisions as the provision may result in a distribution of the entire balance of an inherited retirement account within 10 years in the event that the beneficiary is not exempt under the new law.  Individuals may want to assess the potential benefits of including accumulation provisions to ensure that their retirement account funds are protected from the beneficiary’s creditors, future lawsuits, or disgruntled spouses during a separation.

Similarly, charitable remainder trusts may prove to be a tax-savings alternative for individuals who are charitably inclined.  Otherwise, the potential benefits of life insurance, life insurance trusts, and roth conversions should be analyzed to determine if they provide better protection of assets for future beneficiaries.  In sum, individuals with existing trusts should contact legal counsel and financial advisor to determine if the SECURE Act negatively affect their existing asset protection plans.