SECURE ACT Eliminates “Stretch” IRAs and Impacts Beneficiaries in Other Ways
In December 2019, the SECURE Act was passed, which changes how retirement plans can be paid out and taxed after one’s death. This is relevant to anyone who has retirement assets payable to a revocable trust. In summary:
- Qualified retirement plans and IRAs passing to most beneficiaries, other than outright to a spouse, can no longer be paid over the beneficiary’s life expectancy (no more “stretch” IRAs).
- Instead, after the death of the plan participant, in general, the retirement assets must be paid out either in 5 years, 10 years, 10 years after the beneficiary reaches the age of majority, or over what would have been the plan participant’s remaining life expectancy, depending on the circumstances.
- Some revocable trusts require an automatic payout of retirement plan assets taken out of the retirement plan directly to a trust beneficiary, which could move assets out of a trust more quickly than originally anticipated.
- If you have substantial retirement assets payable to your revocable trust, we recommend you contact us to determine whether your estate plan still works appropriately under your circumstances.
Other relevant provisions of the SECURE Act include:
- The age when a plan participant must begin to take required minimum distributions for qualified retirement plans and IRAs is now 72 instead of 70 1/2.
- Some beneficiaries are still eligible for the “stretch” lifetime payout, such as persons permanently disabled or chronically ill, and there are specific types of trusts that can be set up for them. A spouse is also eligible, but a trust for a spouse may not be.
- There is no change to the ability of a spouse as a named beneficiary to roll over a retirement account to his or her own IRA for maximum income tax deferral (note that this choice removes the ability of the original owner to direct what happens to the assets at the spouse’s death).
- Retirement plans of people dying before 12/31/2019 can continue to use the stretch payout over the life expectancy of the beneficiary in the same manner as before the SECURE Act.
- 529 plans can now be used for “apprenticeship programs” as defined in the statute, and up to $10,000 of a 529 plan account can be used to pay back student loans. Unlike most of the Act, the 529 provisions are effective retroactively to 12/31/2018.
As always, we are here if you need any estate planning guidance or other assistance.