The SECURE Act became effective on January 1, 2020. SECURE stands for “Setting Every Community Up for Retirement Enhancement” Act. The SECURE Act made some important changes to the treatment of qualified funds such as those in IRAs, 401(k)s, and pension plans. These changes will likely impact most people’s retirement plans.
Attempts to Promote Retirement Savings
One change worth noting is that, under the SECURE Act, a non-spouse who inherits an IRA is no longer allowed to take required minimum distributions over his or her life expectancy (as was previously permitted). Inherited IRAs must now be entirely distributed within 10 years.
Moreover, there are no RMD’s (Required Minimum Distributions), and the account may be distributed in any preferred increments. However, the entire contents of the IRA must be distributed within 10 years. If one has named a Trust as the beneficiary of a retirement plan, the impact of the Act could be critical. Depending on the wording of the Trust, the beneficiary may not have access to the funds until the 10th year, and may then experience dire tax consequences upon receipt of the entire lump sum in year 10.
Another change that will affect everyone who did not turn 70.5 years old before January 1, 2020, is that the Act increases the age to begin receiving RMDs (Required Minimum Distributions) from 70.5 to 72 years of age. The Act takes into account that the older population is continuing employment into their golden years, and eliminates the maximum age for making contributions to traditional IRAs (which was previously 70.5 years of age).
Additionally, the Act has changed how small businesses and part-time employees may participate in retirement plans. The Act further added exceptions to early withdrawal penalties for new parents and made changes in the treatment of funds held in 529 college savings accounts.
Evaluate Your Retirement Savings Now
The SECURE Act has both pros and cons. Now is the time to review your retirement portfolio and your estate planning documents to ensure that the Act does not have adverse consequences to your retirement plan, and to ensure that you are taking advantage of all the Act has to offer.
Catherine Duffy practices law in Media, PA, and has been a licensed attorney for over 20 years. Please feel free to contact Catherine if you have any legal questions, including those regarding retirement planning, wills & trusts and estate administration. You can reach Catherine at 610-892-7700, or at firstname.lastname@example.org.