Billed as a way to help Americans expand their retirement savings, the Setting Every Community Up for Retirement Enhancement (SECURE) Act may prove to cut both ways. The SECURE Act, which passed the House of Representatives on May 23, 2019 and was signed into law by President Trump on December 20, 2019, went into effect on January 1, 2020. Some Americans will save more, thanks to its provisions, while others will find themselves faced with increased tax burdens.
Will the SECURE Act help you grow your retirement savings? It’s possible – though you may have to make changes to your existing retirement or estate plans to take advantage.
What the SECURE Act Does
This legislation includes more than two dozen provisions. Many won’t change how average Americans save for retirement. But several of the most significant provisions could have a direct effect on how you manage your money in the coming years, so it’s important to understand the basics of what the SECURE Act does.
How the SECURE Act Might Affect You
Exactly how this new legislation will affect you depends largely on your age and retirement plans. For a young parent struggling to afford adoption fees or birth-related costs, the lifting of the early-withdrawal penalty may have a profound positive impact. If you’re nearing your 70s, still working and focused on maximizing your retirement savings, the repealment of the age cap for IRA contributions could be very good news. And some Americans won’t experience any major changes that can be attributed to the SECURE Act.
However, the new requirements around withdrawing inherited account balances could have significant, potentially negative implications for many beneficiaries in the coming years. Prior to the SECURE Act, an individual who inherited an IRA account could use a trust with conduit provisions to stretch the money and minimize taxes. The required minimum distribution would be calculated based on the beneficiary’s life expectancy, so a beneficiary who was expected to live for 40 more years could divide their payouts over 40 years. These arrangements are often described as “stretch IRAs.” The beneficiary would have to pay taxes on the RMD each year, so the tax payments would also be stretched out over a long period. Under the new law, non-exempt beneficiaries can no longer stretch distributions in this way. Within 10 years of the account owner’s death, the assets must be withdrawn and taxes must be paid.
If you’ve set up a trust with conduit provisions, in anticipation of stretching your assets for future generations, now is a good time to review your plans. Your estate planning advisors can help you determine what effect, if any, the SECURE Act will have on your retirement plans. Also keep in mind that these new changes could also affect your own financial future. If you know that a loved one has named you as the beneficiary of an IRA and you won’t meet the criteria for an exception from the 10-year cap, having that information now may inform how you plan for what’s ahead.
Because it’s been so recently enacted, there’s a lot of uncertainty around how the SECURE Act will impact Americans saving for retirement. The best way to combat that uncertainty around your own plans is to review them with your retirement planners. The team at Ladimer Law can help you determine how to move forward, whether that’s setting up new trusts, updating your beneficiaries or leaving your current plans in place.
Will your existing plans allow you to have the retirement you deserve and provide maximum protection for the loved ones who survive you? Contact us to schedule an appointment today to make sure.
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Ladimer Law specializes in estate planning. We protect our clients, their heirs, and their assets by listening closely, knowing the law, and executing estate plans that fit and evolve.