Should You Change Your Estate Plan Because of the SECURE Act?

Here is another reason why estate planning is never a one-and-done project.

Setting Every Community Up for Retirement Enhancement (SECURE) Act — which took effect on Jan. 1, 2020 — created a mixed bag of benefits and new requirements for Americans saving for retirement.

Starting in 2022, a new law, part of the SECURE Act, may affect estate plans from 2022 going forward, especially for those beneficiaries of an IRA or qualified plan, such as a 401(k). Before 2020, the beneficiary of an inherited individual retirement account (IRA) was able to defer taxation over their lifetime by taking required minimum distributions based on the age of the beneficiary. The younger the beneficiary, the longer the tax deferral. Of course, the beneficiary still had to pay income tax on those withdrawals, but could essentially spread distribution for decades where the beneficiary was a child of the owner.

Beginning with retirement account owners who passed away after Jan. 1, 2020, however, most beneficiaries must withdraw assets from the inherited IRA or 401(k) within 10 years of the death of the owner. Some exceptions to this rule can be explained by an estate planning attorney.

Takeaways

The tax rate for a trust is usually higher than the individual tax rate. You will want your attorney to review the language in your trust to avoid any adverse consequences resulting from the changes mandated by the SECURE Act.
Create a strategy with your advisor to minimize the tax burden from the inherited IRA.
Familiarize yourself with catch-up contributions, ROTH IRAs, and the upcoming change in laws.

We all have a long list of to-do’s in daily life. Changes in the law provide good reason to move estate planning and taking care of family in the future, up towards the top of that list. Learn more about the Secure Act here.