The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law on December 20, 2019, brought about significant changes that impact retirement and estate planning. This landmark legislation aims to help Americans save for retirement and make it easier for employers to offer retirement plans. However, one of the most notable aspects of the SECURE Act is its effect on estate planning.
If you’re approaching retirement or already in your golden years, it’s critical to understand the game-changing effects of the SECURE Act on your estate planning. In this article, we’ll examine the key changes brought about by the SECURE Act and how they may affect your estate planning strategy.
Key Changes Brought About by the SECURE Act
The SECURE Act introduced several changes that have far-reaching implications for estate planning. Let’s break down each change and explore its impact on your estate planning strategy:
Required Minimum Distributions (RMDs) Age Limit Increase
– Prior to the SECURE Act, individuals were required to start taking RMDs from their retirement accounts at age 70½. However, the SECURE Act raised the age limit for starting RMDs to 72, giving individuals more time to allow their retirement savings to grow tax-deferred. This change allows for more flexibility in managing distributions from retirement accounts.
Inherited IRA Distribution Changes
– One of the most significant changes brought about by the SECURE Act is the modification of rules governing inherited individual retirement accounts (IRAs). Under the new law, most non-spouse beneficiaries who inherit IRAs are required to distribute the entire account within 10 years of the original owner’s death. This change eliminates the “stretch” IRA strategy that allowed beneficiaries to spread distributions over their lifetimes, potentially reducing the tax impact.
Lifetime Income Options in Retirement Plans
– The SECURE Act encourages employers to offer lifetime income options, such as annuities, within retirement plans. This change aims to provide retirees with more options for creating a steady stream of income in retirement. While this change is not directly related to estate planning, it may have implications for how retirees structure their estate plans to account for income from annuities.
Repeal of Maximum Age for Traditional IRA Contributions
– Another important change brought about by the SECURE Act is the repeal of the maximum age limit for making contributions to traditional IRAs. Under the new law, individuals of any age can continue to contribute to a traditional IRA as long as they have earned income. This change allows older individuals to continue saving for retirement, potentially impacting their estate planning strategies.
Benefitting from the SECURE Act and Practical Tips for Estate Planning
While the SECURE Act has certainly brought about significant changes, it’s important to understand how you can benefit from these changes and make necessary adjustments to your estate planning strategy. Here are some practical tips for estate planning in light of the SECURE Act:
- Review and update your beneficiary designations: With the new 10-year distribution rule for inherited IRAs, it’s important to review and update beneficiary designations on your retirement accounts and other assets. Consider how the changes brought about by the SECURE Act may impact your intended beneficiaries and adjust your estate plan accordingly.
- Consider tax-efficient distribution strategies: With the elimination of the “stretch” IRA strategy for non-spouse beneficiaries, it’s important to consider tax-efficient distribution strategies for your retirement accounts. This may include coordinating distributions with other sources of income and implementing strategies to minimize the tax impact on your beneficiaries.
- Revisit your retirement income planning: The introduction of lifetime income options in retirement plans presents an opportunity to revisit your retirement income planning. Consider how annuities and other lifetime income options can complement your estate planning strategy and provide a steady stream of income for your beneficiaries.
- Seek professional guidance: Given the complexity of the changes brought about by the SECURE Act, it’s crucial to seek professional guidance from a qualified estate planning attorney or financial advisor. An experienced professional can help you navigate the implications of the new law and make informed decisions to protect your assets and provide for your loved ones.
Case Studies: How the SECURE Act Impacted Real-Life Estate Planning Scenarios
To further illustrate the game-changing effects of the SECURE Act on estate planning, let’s explore a couple of hypothetical case studies:
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Case Study 1:
John, a retiree, named his grandchildren beneficiaries of his traditional IRA with the intention of leveraging the “stretch” strategy to provide them with income over their lifetimes. However, with the new 10-year distribution rule for inherited IRAs, John needs to reconsider his estate planning strategy to minimize the tax impact on his grandchildren and ensure they receive the intended benefits.
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Case Study 2:
Sarah, a pre-retiree, had planned to utilize a combination of retirement accounts and annuities to fund her retirement and provide for her children. With the introduction of lifetime income options in retirement plans, Sarah is now exploring how annuities can contribute to her estate planning strategy by providing a reliable source of income for her beneficiaries.
First-Hand Experience: Navigating Estate Planning in Light of the SECURE Act
As a retiree or pre-retiree, navigating estate planning in light of the SECURE Act may seem daunting. However, by staying informed about the changes brought about by the new law and seeking professional guidance, you can make informed decisions to protect your assets and provide for your loved ones. Remember that estate planning is a dynamic process, and it’s important to regularly review and update your plan to reflect changes in tax laws and other regulations.
Conclusion
The game-changing effects of the SECURE Act on estate planning underscore the importance of staying informed and proactive in managing your assets and providing for your heirs. By understanding the key changes brought about by the SECURE Act and implementing practical tips for estate planning, you can navigate the evolving landscape of retirement and estate planning with confidence. Remember that seeking professional guidance is essential in crafting a comprehensive estate plan that aligns with your goals and priorities.
The SECURE Act has reshaped the retirement and estate planning landscape, and it’s essential to adapt to these changes to ensure the long-term security of your assets and the well-being of your beneficiaries. With a proactive and informed approach, you can leverage the opportunities presented by the new law and make strategic decisions to safeguard your legacy.
