January oftentimes brings something new and perhaps unexpected to you and someone you may know. From a new gym membership to a new start with an employer, there’s always “something new” with each new year. As expected, the first month of 2020 already promises to bring changes. The good news is, it’s not too late to be well-prepared for them, and if you care for the well-being of your descendants, you’ll want to ensure those changes are considered sooner than later. The Setting Every Community Up for Retirement Enhancement Act of 2019 — commonly known as the “SECURE Act — goes into effect January 1. The new legislation alters the way IRAs and retirement plans are handled upon your demise. Your loved ones might be at risk of losing some benefits you’ve set aside for them, so it is important that you look over your estate plans immediately and understand how the SECURE Act could affect them. Click To Tweet
Now is a great time to contact an estate attorney and review your posthumous wishes and discuss how your estate plans will change. If you have already met with us, please contact us so that we can discuss how the SECURE Act will impact your situation. For now, here are three big takeaways which explain why the SECURE Act means you must take time out of your holiday celebrations to review your stretch IRAs and retirement benefits trusts today.
The SECURE Act:
1. Raises the distribution age.
Thanks to the SECURE Act, benefits distribution age has been raised from 70-and-a-half to 72 years of age. With more Americans living longer, this is good news. Those who have an estate plan already in place are able to leave a plan in place and/or continue funding a plan — tax deferred — for nearly two years longer. Unfortunately, the age raise also means that those with Qualified Charitable Distribution (QCD) Plans must also wait until the age of 72 to have their IRAs paid towards a charitable contribution. This is not good news for non-profits that might need the financial support sooner than later. For this reason alone, you should review your wishes so that your assets are distributed in a timely manner.
2. Allows IRA Contributions after 70½.
To reiterate an aforementioned point, retirement packages can now be funded through the age of 72. This gives seniors — who may otherwise have to return to work in order to survive — more of a chance to add to their retirement packages, and without penalties. While those with a 401(k) or IRA had to make their withdrawals no later than the age of 70.5 prior to the passing of the SECURE Act, Americans who will turn 70.5 years old before January 1, 2020 will still need to make their final withdrawals. Failure to do so could lead to a benefits penalty of up to 50 percent. If you have a loved one who is has reached 70.5 years of age this year, you should contact our office for assistance.
3. Means no more “stretch” IRAs.
The SECURE Act now requires IRA inheritances to be spent within 10 years, and leads to the end of ‘stretch’ IRAs. A stretch IRA is a former estate planning method that would extend the tax-deferred status of a retirement plan when a non-spouse became a beneficiary. A non-spouse is a child, grandchild, or anyone else related but not married to a retiree. These non-spouses, whether they are ready to or not, must prepare to withdraw from their inheritances within a decade. Parents (and grandparents) used to be able to leave the IRA balance to children or grandchildren who could then receive distributions throughout their lifetimes. Doing this not only helped the beneficiaries save more money for their future but also allowed for tax deferments. The SECURE Act no longer allows this; the taxes on the inheritance must be paid to the IRS once the benefits are distributed. While there are some family members who are exempt from this rule, this is a significant change from past practices.
The SECURE Act of 2019 could be a hard pill to swallow as the mandate means drastic change for retirement and estate plans throughout the country, regardless of financial and social status. The SECURE Act has the potential to affect one in five IRA account holders in the United States. This means there’s a great chance that you or your loved ones will be greatly impacted. We are prepared to answer any questions you have. Call us now so that we can discuss its impact and the best approaches for you moving forward.