Is your future SECURE? The SECURE Act and it’s impact on YOU!

In late December 2019, Congress passed a new law called the Setting Every Community Up for Retirement Enhancement Act (the "SECURE Act"). This new law upended how we treat retirement plans and could have some drastic impact on how someone handles their retirement accounts and estate planning.

There are six major parts of the bill that are important for anyone saving for retirement, including the following:

·       There are no maximum ages for traditional IRA contributions

·       You can wait to withdraw from your IRA until 72

·       Long-term, part-time workers can join their company's 401(k) plan.

·       Parents can withdraw up to $5,000 for birth or adoption expenses (Penalty-Free!)

·       Parents can withdraw up to $10,000 to pay to help repay student loans.

Great, so the SECURE Act can help people better prepare for their retirement on paper, right? Well, maybe.

Previously, lawyers could work with clients to strategize ways for their client's families to maximize IRA withdrawals.  This strategy was called the "stretch IRA." In effect, an IRA beneficiary could at one point extend distributions far into the future. This type of planning was great for the account holders because they could pass on their IRA accounts without considering that a beneficiary received a windfall from the account. However, not all is great in Oz these days. Following the passing of the SECURE Act, there have been changes to retirement planning. Namely, distributions are limited to 10-years, which may prove to be less than ideal for many IRA account holders.

The impact of the SECURE Act's requirement that IRA accounts must be liquidated within 10-years of the account holder's death is likely to have long-lasting effects on estate planning for years to come. This change is monumental because it can result in a potential windfall for beneficiaries. For example, if an IRA has $1 Million and the beneficiary is 30 years old on the IRA account holder's death, the beneficiary must withdraw all $1,000,000 within ten years. On the surface, this might not appear disadvantageous.  Many of us can think of how

So what should a person do? In general, the 10-year distribution rule appears here to stay for the time being under the SECURE Act.  Thankfully, there remain some options with how to work within the framework. One potential option is for trustees to distribute equity held by the IRA in-kind if the trust is the beneficiary of the trust.  Additionally, depending on the type of IRA, Roth, or Traditional, there may exist options to minimize taxation. In the case of a Roth IRA, where contributions to the Roth have already been taxed, it may be possible to delay distributions to a trust until the tenth year.  The effect of such planning would be to limit tax on the Roth IRA for 10-years, and then future growth, beginning in the tenth year, will be subject to tax.

Everyone's situation is different, and there remains no one-size-fits-all approach now that we are living in a SECURE Act world.  If you have questions or are concerned about what will happen with your IRA, it is best to speak with an attorney who understands the SECURE Act language and can help you make a plan that works in your best interest.