The SECURE Act will impact retirement accounts
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law. It went into effect on January 1, 2020. While its purpose is to prevent older Americans from outliving their assets, it has a profound impact on estate plans that include retirement accounts.
If you have already established a will or trust, now is a good time to revisit it — especially if you have established a conduit trust (transfers IRA assets to beneficiaries) or revocable trust (can be changed based on circumstances and health).
Act limits retirement accounts to 10 years from original owner's death
Prior to the passage of the SECURE Act, IRA accounts included in an estate plan could be stretched for the life expectancy of a beneficiary. That means, someone who inherited an IRA account from a deceased parent before January 1, 2020, could withdraw minimum annual funds and stretch it out over the course of his or her lifetime. Beneficiaries could also take advantage of the deferred tax benefits.
The SECURE Act limits the life of IRA accounts in estate plans to only 10 years from the date of the original owner's death. Beneficiaries must now withdraw all IRA funds within that time period, but the yearly minimum withdrawal requirements and deferred tax benefits are null and void. Beneficiaries can withdraw as much or as little as they want within those 10 years.
Who is exempt from the 10-year rule?
Exceptions of the SECURE Act's 10-year rule apply only to:
- The original IRA account owner's spouse
- Minor children
- Beneficiaries who suffer from a disability or chronic illness
- Beneficiaries who aren't any more than 10 years younger than the original IRA account owner
What should I do if I have included a retirement account in my estate plan?
If you have already established your estate plan, you should consult with an experienced attorney as soon as possible. You may have other legal options available to you, such as:
- Retirement trusts: Protects retirement assets for beneficiaries by allowing trustees to distribute assets upon distribution.
- Charitable trusts: Retirement accounts can continue to grow tax-deferred. Charity is only paid at the end of the term.
The Arizona attorneys at The Law Firm of Brown & Jensen can help you explore your estate planning options and develop a plan that best suits your family's needs. We serve clients in Mesa, Tucson, Scottsdale, Chandler, Peoria, Goodyear, Payson, and Show Low. Contact us online to schedule your free consultation with our legal team.