In August we warned you that the Setting Up Every Community for Retirement Enhancement Act, better known as the Secure Act, was likely to become law and that it would ultimately cause more of your retirement accounts to be paid to the IRS. Well, it was signed into law on December 20, 2019 and it has significantly changed the traditional planning for retirement benefits known as the “stretch IRA”. Since it applies to anyone who dies after December 31, 2019, if you had planned to use the stretch IRA to pass your IRA to your children or grandchildren, you’re out of luck. As noted by
The Wall Street Journal, “thanks for the grace period.” Here is a brief summary:
Elimination of the stretch IRA. For decades, the traditional planning for retirement accounts has been to make your IRA or other retirement accounts payable to your spouse as primary beneficiary and your children or trust as contingent beneficiary. This would permit the retirement account to be withdrawn (i.e. stretched) over the life
expectancy of the designated beneficiary or oldest trust beneficiary. That option is now gone except for certain persons: surviving spouse, minor child, disabled or chronically ill beneficiary or a beneficiary who is not more than 10 years younger. For all others, the entire IRA account must be withdrawn within 10 years of the death of the owner.
Thankfully, there is some good news about the SECURE ACT. While the elimination of the stretch IRA far exceeds the good news, here are some of the positive changes:
1. IRA contributions are permitted after age 70 ½.
2. Required minimum distributions (RMDs) do not begin until age 72.
3. It allows for multi-employer 401(k) plans and permits part-time employees to participate.
4. New parents can withdraw up to $5000 without penalty.
5. Tax credits to encourage small businesses to create a retirement plan.
Now that the Secure Act is law, it is critical that you revisit your estate planning to make sure that it takes into consideration the new law and your goals and objectives. Be sure to consult with an experienced elder law attorney.