On January 1, 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, making widespread changes to the rules and regulations regarding retirement assets, became effective.
From an estate planning perspective, the most significant change is the requirement that most non-spouse beneficiaries of an inherited IRA or other inherited retirement asset, such as a 401(k), must withdraw the entire balance of the inherited asset within 10 years of the decedent’s death. Prior to the SECURE Act, beneficiaries of inherited retirement assets were able to “stretch” the required minimum distributions (RMDs) out over their projected lifetimes, thereby reducing the total income tax burden.
The following classes of beneficiaries are exempt from the 10-year distribution requirement, and may continue to “stretch” distributions out over their lifetimes:
– Surviving spouses;
– Minor children (but only until age 18);
– Chronically ill and disabled beneficiaries; and
– Beneficiaries who are not more than 10 years younger than the decedent.
Ultimately, this change will result in a greater tax burden for most beneficiaries, and individuals whose estates include IRAs and other retirement assets should review their beneficiary designations and overall estate plan with the new rules and regulations in mind.
If you have any questions on this topic, please contact Lin Law LLC at (920) 393-1190.