And here you thought you had things wired. But this is Congress we’re talking about and there’s a LOT of money at stake.
Now, any plans you may have had for ‘legacy’ to children were just changed. One of the most significant changes made by the SECURE Act to impact clients is the elimination of the ‘Stretch’ provisions for most non-spouse beneficiaries of defined contribution plans and IRA accounts.
Under current law for those who have already passed away (or did by the end of 2019), designated beneficiaries (generally, living human beings, and certain qualifying trusts) are eligible to stretch distributions over their life expectancy.
However, for most designated beneficiaries who inherit in 2020 (i.e., where the retirement account owner themselves dies in 2020 and beyond), the new standard under the SECURE Act will be the ‘10-Year Rule’.
Under this 10-Year Rule, the entire inherited retirement account must be emptied by the end of the 10th year following the year of inheritance. Similar to the existing 5-year rule for non-designated beneficiaries, though, within the 10-year period, there are no distribution requirements. Thus, designated beneficiaries will have some flexibility when it comes to timing distributions from the inherited account(s) for maximum tax efficiency… as long as the entire account balance has been taken by the end of the 10th year after death.
There are some exceptions to the new ’10 Year Rule’:
– Spousal beneficiaries
– Disabled (watch the caveats)
– Chronically ill
– Individuals who are not more than 10 years younger than the decedent
– Certain minor children, but only until they reach the age of majority.
A few more changes:
– the new Requirement Minimum Distribution (RMD) is now 72
– there are new exceptions to the 10% penalty early withdrawal
– contributions to traditional IRAs may now be made past age 70 1/2.
These are just a few of the changes that will require many to rethink their estate plans.
We’re planning to do a live presentation the end of January and will send out notices to register for it, so stay tuned for information to come out next week.
This is a good opportunity to come for a review and update of your plan. Call us at 443-718-6311 or click here to schedule an appointment.