On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law, which provided for a number of significant revisions to the law applicable to retirement accounts for most individuals. While some of the laws — particularly as they relate to the spousal beneficiaries — are unchanged, some of the more important changes are as follows:
- Prior law required individuals to take Required Minimum Distributions (“RMDs”) by April 1st of the year in which they attained age 70 1/2. For individuals who will turn 70 1/2 in 2020, they now are able to defer taking RMDs until the year in which they reach age 72. This means individuals born on or before June 30, 1949 are subject to the old “70 1/2” rules and those born after that date will be subject to the new rules.
- The so-called “Stretch IRA” planning has been significantly curtailed by the SECURE Act for most non-spousal beneficiaries. There are exceptions for minor children and certain beneficiaries with disabilities, but other beneficiaries who were previously allowed to take beneficiary RMDs based on their life expectancy will now be required to withdraw all funds by the end of the 10th year following the account holder’s death. For minor beneficiaries, the 10-year period will begin when they reach the age of majority.
- The age limits for certain contributions to IRAs that had been removed.
With respect to the primary estate planning decisions regarding retirement account — naming beneficiaries — these rules can have a significant impact. When trusts are involved, there are some trusts that required any withdrawals from retirement accounts to pass out to beneficiaries. These trusts are usually called “conduit trusts,” and were usually structured that way to take maximum advantage of the Stretch IRA opportunity. With those advantages now very limited, conduit trusts may be less attractive or appropriate. Regardless, a review of the implementation of any conduit trust planning should probably be reviewed in light of the SECURE Act’s passage.