Choose The Right Team



By: Katie Charleston Law, PC

How the SECURE Act affects Estate Planning

Financial Planning

The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was approved by the Senate on Dec.19, 2019, and signed by President Trump on Dec. 20 as part of an end-of-year appropriations act and accompanying tax measure. In addition to the resulting billions of dollars that will go to the Treasury department because of this bill, it also includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older generations from outliving their assets. This bill takes effect on January 1, 2020.

It’s important to note from the outset that this bill will not affect everyone. There have been a few carveouts to provide exceptions for spouses, disabled beneficiaries, minors, and beneficiaries that are no more than 10 years younger than the deceased they are inheriting from.

This Act eliminated required minimum distributions for beneficiaries, but it also limits the stretch-out of inherited qualified retirement plans, like 401ks and IRAs. While as of 2019 a beneficiary might be able to stretch out an inherited 401k or IRA for their lifetime, this bill limits it to 10 years. This means that the beneficiary, if not one of the few carved-out exceptions, must deplete the inherited 401k or IRA within about 10 years of the deceased. This also means that it will be subject to taxes on the full amount over the 10 years, which could have a substantial impact, especially if the beneficiary is at the peak of their earning years.

While this law may not affect everyone, it is a good idea to look at the structure of your estate plan to determine who the beneficiaries of your qualified retirement accounts are and whether they would be negatively impacted by this type of inheritance. A restructuring of your estate plan might benefit you and your beneficiaries. For example, using your retirement accounts during your lifetime or leaving them to a charity close to your heart, while leaving property to your beneficiaries via a dynasty trust, could limit the tax exposure to your beneficiary while still putting your retirement accounts to good use.

As always, speaking to a lawyer about your options and the laws is suggested. Katie Charleston Law focuses on this area of law in Indiana, California, Nevada, and Texas.