When it comes to estate planning, it is important to remain abreast of the many acts, laws, and regulations that have been enacted or changed because it may affect your estate planning needs and goals. Today we will be introducing you to the Setting Every Community Up for Retirement Enhancement (SECURE) Act – which took effect on January 1, 2020. Specifically discussing how it can impact your estate planning.
What is the SECURE ACT? The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was part of the Further Consolidated Appropriations Act of 2020 United States federal budget. The SECURE Act was the first major retirement related legislation enacted since 2006 and impacted many popular retirement plans such as: 401(k)s, defined benefit pension plans, individual retirement accounts (IRAs) and 529 college savings accounts. Here is a breakdown of the changes made to many retirement plans (particularly IRAs) as a result of the SECURE Act:
- The minimum age limit which required distributions (RMDs) begin changed from 70½ to 72.
- Contributions to traditional IRAs can now occur after the age of 70½ to match the unlimited age limit of ROTH contributions.
- Qualified Charitable Contributions (QCD) are offset by post-70½ tax-deductible IRA contributions. Without getting into the minutiae of calculations, QCDs can be made at 70½ instead of 72 with one caveat — the contributions no longer avoid tax recognition to the extent of cumulative post-70½ IRA contributions made by the taxpayer.
- Prior to the SECURE Act, IRA beneficiaries were allowed, if they chose, to “stretch” RMDs from inherited IRAs over their respective lifetimes. Under the new rules, with certain exceptions, the stretch provision is now replaced with a 10-year window for completely distributing the contents of the account.
- Prior to passage of the SECURE Act, you had to start withdrawing funds from traditional IRA by April 1st of the year after you turned 70 ½. These annual withdrawals are called required minimum distributions (RMDs). Now with the SECURE Act the RMD requirement changed from age 70 ½ to 72. So, when you turn 72, you have to start withdrawing money from your IRA or 401(k), and you have to pay income tax on the amount of those withdrawals.
- The SECURE Act removed the age limit for IRA contributions. You can now continue to contribute to your IRA at any age as long as you are still working.
- The 10-YEAR Rule. The 10-year payout period means that the balance of the account must be withdrawn by the beneficiary by the end of the 10th year starting from the year proceeding the owner’s death. No distributions are required in the preceding years leading up to the 10th year.
- 529 Plan Changes. The SECURE Act allows people saving money in a tax-advantaged 529 plan to use up to $10,000 to pay off student loans. 529 Plans can now also be used to pay the costs of apprenticeship programs.
- Tax Changes. The SECURE Act partly revises the 2017 Tax Cuts and Jobs Act (TCJA) repealing certain provisions that increased taxes on the benefits received by family members of deceased United States military veterans and graduate students.
- Funding. The SECURE Act is estimated to cost $15.7 billion. It is primarily funded through a change to “stretch” IRAs. Under the SECURE Act, disbursements must be collected and taxed within 10 years of the original account holder’s death. This provision shortens the time period in which tax-advantaged accounts can grow and will increase the taxable income of beneficiaries during that ten-year period, generating tax revenue to fund the cost of the law.
Are you interested in learning more about how the SECURE Act can affect your estate planning goals? Contact The Law Offices of Marjory Cajoux to see if there are any updates you should be making to your current estate plan.