For many, establishing a retirement savings plan is an investment in their future, but not all are prepared. According to the U.S. Federal Reserve, nearly one quarter of American adults have no retirement savings or pension at all.

The SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement, was signed into law by President Trump in December 2019 and enacted on January 1, 2020. The reforms intend to make saving for retirement more accessible for a greater number of Americans, through a wide range of provisions, including incentives for small businesses to offer retirement plans and support for individuals to save for retirement.

Most, if not all, retirement savers will be impacted in some way by the bill, which includes changes that will affect defined contribution (DC) plans, defined benefit (DB) plans, individual retirement accounts (IRAs) and 529 plans. While the SECURE Act impacts many aspects of retirement planning, we’re focused on the consequences for income tax and estate planning. The key changes include:

  • The “stretch” IRA is eliminated. This means that beneficiaries who inherit a deceased person’s IRA can no longer stretch that inheritance over the course of their lifetime. Beneficiaries must now withdraw inherited IRA assets from the account within 10 years following the death of the account owner. This only applies to beneficiaries where the account owner died after January 1, 2020. Additional exceptions to requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than ten years younger than the decedent.
  • Required minimum distributions (RMD) age requirement increased to 72. To address the fact that Americans are now living and working longer, the SECURE Act bumps up the age at which they have to start taking withdrawals from IRA and 401k assets, which previously started at age 70 ½. This change specifically applies to those born after June 30, 1949. While this only will impact a portion of people, there are penalties for failing to take a required minimum distribution at the proper time.
  • The age cap for IRA contributions is eliminated. In tandem with the RMD age requirement increase, the SECURE Act also removes the maximum age limit for contributing to a traditional IRA, meaning that people 70 ½ and above can continue to contribute to their traditional IRA as long as they are still working.

As with any new legislation introduction, it’s best practice to review your tax and estate plans, evaluate how they will be impacted, and establish new strategies to capitalize on the benefits or minimize the impact. Here are a few steps to help you get started:

Review retirement accounts and estate planning strategies

Before making any changes review all the provisions of the SECURE Act and evaluate how they will impact your retirement accounts. Flag the impacted areas and develop a strategy on how to decrease negative effects. This can be done on your own or with the help of a financial advisor.

Check your beneficiaries

The SECURE Act’s changes to the inherited IRA beneficiaries’ timeline to withdraw the account assets means that beneficiaries will have much less time to withdraw the assets. If you plan to leave a retirement account to one or more individuals, check your beneficiary designations to ensure they align with the new rules.

Review your trusts

If the beneficiary of your retirement account is a trust, you should review your trust to determine whether it is structured properly to protect your legacy or if you need to amend it.

These are just a few things to consider when examining how the SECURE Act may impact your income tax and estate planning. While the impacts may be small, it’s important to take a proactive approach as the SECURE Act entails many changes to the retirement and estate planning landscape.

Everyone’s situation is different, if you have questions or would to schedule an appointment to discuss your personal needs and circumstances, give us a call at (617) 342-5600 or email info@jpmarvel.com.