On December 20, 2019, President Trump signed into law the SECURE Act Setting Every Community Up for Retirement Enhancement), which was surprisingly included a last-minute appropriations bill designed to avert a government shutdown before the end of the year.
The new law will now affect how individuals are able to save money for their retirement, and how heirs will eventually be able to use those funds once the account holder has passed away. Key changes under the SECURE Act include the following:
New Age Requirements for RMDs
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.
Beneficiaries Can No Longer Choose to “Stretch” an Inherited IRA
Under the SECURE Act, younger beneficiaries can no longer “stretch” their IRA, which does away with the concept of taking small required minimum distributions over the beneficiary's 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 IRA funds passed to beneficiaries will now have to be withdrawn within 10 years of the death of the original holder and would be subject to taxes much sooner than your children or grandchildren may have been expecting.
Trusts Dealing with Retirement Accounts May 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.
How Do I Know If My Plan Needs to Change?
Because each estate plan is different, it's a wise idea to have your documents reviewed to ensure that they will still accomplish your goals under the new laws. If you live in the state of Georgia, we invite you to call one of our offices at 770-425-6060 to schedule an appointment. We'd be happy to go through your current documents for the peace of mind knowing that your plan will work as intended.