On December 20, 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act is effective January 1, 2020 and is the most significant legislation affecting retirement accounts in the past thirty years. The SECURE Act has a number of positive changes in that the Act increases the required beginning date (RBD) for required minimum distributions (RMDs) from individual retirement accounts from age 70 1⁄2 to 72 years of age. The Act also eliminates the age restriction for contributions to qualified retirement accounts. Significantly, however, with the exception of five particular types of beneficiaries (Eligible Designated Beneficiaries) (EDB), the life expectancy payout has been replaced by a ten year payout rule. For example, a fifty year old child who inherits an IRA account from a deceased parent will have to withdraw the entire account within ten years after the parent’s death. The previous payout period was in excess of thirty four years. Under the new law, the reduced payout period may well result in the acceleration of income tax due and possibly cause the child to be bumped into a higher income tax bracket and thereby receiving a reduced amount in the retirement account than originally anticipated.
The SECURE Act does provide a few exceptions to the ten year payout rule that includes: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals. It should be noted that when a minor child attains majority the ten year payout rule commences.3
Enactment of legislation such as noted above underscores the importance
of ongoing review of estate planning goals and consideration of intended beneficiaries’ circumstances in order to attain desired estate planning goals and properly provide for intended beneficiaries.