Hyden, Miron & Foster, PLLC Law Blog

Monday, February 10, 2020

What the SECURE Act Means for Retirement Account Beneficiaries


The start of the new year brought some big changes to estate planning and retirement planning. For instance, the Setting Every Community Up for Retirement Enhancement Act, referred to as the “SECURE Act,” became effective on January 1, 2020. The intent of the act is to help people fund their retirement. People are living longer and many are effectively living through whatever retirement savings they have.

The SECURE Act is intended to help address this. One of the most prominent changes ushered in by the SECURE Act affects those who are retirement account beneficiaries. These individuals should be aware of the SECURE Act provisions that will directly impact them and be proactive in planning around these changes.

How does the SECURE Act affect retirement accounts?

In the past, if you were the beneficiary of an IRA, 401(k), or another type of retirement contribution plan, you had the option of extending the withdrawals from these inherited plans over your lifetime. This was intended to minimize tax consequences and was a strategy referred to as “stretch IRA.” It was referred to as such because the minimum distributions were being stretched out over a long period of time while funds in the account continued to enjoy tax-deferred growth.

Now, under the SECURE Act, there is only a 10-year time frame in which the beneficiary of a retirement account has to draw down the money held in the account. While there are no required minimum distributions imposed by the SECURE Act, the time limit to withdraw the money makes time of the essence. All of the money that’s left in the account must be withdrawn and the account must be closed by the 10-year mark. There are, however, certain exceptions to this new rule established by the SECURE Act. There are certain people who will generally be exempt from the 1- year distribution time limit. These people include:

  • Surviving spouses
  • Minor children
  • People not more than 10 years younger than the deceased individual

Estate Planning Attorneys

While IRAs and 401(k)s were never actually intended to be vehicles for transfers of wealth, many people have used them as such. This one change brought under the SECURE Act is estimated by the Congressional Research Service to generate $15.7 billion in revenue. This will help offset the tax losses that will be sustained as a result of other changes brought under the SECURE Act. With the establishment of these new beneficiary rules under the SECURE Act, it is important that you review your retirement account beneficiary designations.

The trusted estate planning attorneys at Hyden, Miron, & Foster are here to help you navigate these major changes brought under recent laws. The law is always changing and we are here to help ensure that your estate plan is in line with them and that your personal goals for your future and that of your family are protected in the best possible way. Contact us today.

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