What does the SECURE Act mean for estate planning?
The Setting Every Community Up for Retirement Act or SECURE Act of 2019 will bring about significant changes to retirement and estate planning in the year 2020. President Trump signed the SECURE Act into law in December. Professionals in the retirement planning field have evaluated the new law as bringing about mostly positive changes for employees, with one major downside to traditional estate plans. Our Tampa estate planning lawyers discuss the changes that the SECURE Act will bring to your retirement planning below.
Age Restrictions Eliminated for Traditional IRAs
One of the positives brought about in the SECURE Act is the elimination of the maximum age for traditional IRA contributions. Previously, the maximum age for traditional IRA contributions was 70 and a half. Now, you can continue to contribute past this age until you hit the maximum of either the $6,000 limit ($7,500 if you are 50 and older) or 100% of your earned income. This makes traditional IRAs more similar to ROTH IRAs, which have not had age restrictions.
Business Owners Have More Options When Starting Retirement Plans
Another positive to come out of the SECURE Act is the creation of more options for small business owners to offer employee retirement plans. Employers will now receive more tax credits for starting an employee retirement plan and can begin their plan retroactively after the close of the fiscal year. The law makes it easier for employers to make multiple employer plans or MEPs. MEPs allow multiple unrelated companies to jointly offer the same retirement plan. This will reduce costs and allow employees more options when it comes to saving for their retirement.
“Stretch Out” Tax Deferrals Will End for IRAs and 401(k)s
The negative component to come out of the SECURE Act for many will be the elimination of the “stretch out” tax deferral for IRAs and 401(k)s. The stretch out income tax deferral allowed for non-spousal death beneficiaries who inherit retirement accounts to take small required minimum distributions over their lifetime, thus reducing their income taxes owed and allowing the continued accumulation of the growth of the assets.
Now, non-spouse beneficiaries will be required to receive the full distribution of the inherited IRA within 10 years of the owner’s death. This will in effect eliminate the favored stretch-out deferral. Certain recipients are exempt from the SECURE Act’s requirements, including the IRA owner’s surviving spouse, minor or disabled children, and beneficiaries not more than 10 years younger than the owner. Individuals who may be impacted by the new SECURE Act will need to consult with an estate planning lawyer as soon as possible.