Top 6 Things to Know about the SECURE Act:
1. The stretch IRA is no longer an available strategy and the balance of an inherited retirement account will need to be withdrawn (and taxed) within 10 years of the death of the owner, with a few exceptions:
a.
Those that already owned an inherited account as of 12/31/2019
b.
A spouse beneficiary
c.
A disabled individual
d.
Minors (10-year period starts once attaining the age of majority)
e.
A beneficiary who is no more than 10 years younger than the owner
2
. Naming a conduit Trust as beneficiary of a retirement account has new consequences.
At death, under the new law, no distributions are required to be made for 10 years. However, if this occurs, in year 10 the entire account balance must be paid out and taxed as ordinary income to the ultimate beneficiary. This obviously could result in excessive income tax being paid in a single year.
IF YOUR WILL OR TRUST NAMES A TRUST AS BENEFICIARY OF ANY RETIREMENT ACCOUNT ASSETS, WE HIGHLY SUGGEST THAT YOU CONTACT YOUR ESTATE ATTORNEY TO SEE IF LANGUAGE IN SUCH TRUST NEEDS TO BE AMENDED.
3. Naming an accumulation Trust as the beneficiary of a retirement account also has consequences.
You are given the 10-year period to pay out the funds, however all distributions are taxed at the Trust level. Trust income tax rates generally get higher (and on less income) than individual rates.
4. Required Minimum Distribution age is now 72, not 70.5.
Those that were 70.5 prior to 12/31/2019 continue their RMD’s as normal. Those who defer to age 72 have until April 1st of the year following when they became age 72 to take their first distribution. Like prior law, if you take advantage of the April 1st date, a second distribution will need to be taken that year.
5. You are now permitted to make Traditional IRA contributions after age 70.5 (this was not the case before).
6. You are allowed to pull up to $10,000 per year out of 529 accounts to pay off student loans without tax or penalty.
Best,
Charles Stewart
Associate Vice President | Private Wealth Manager
