A new federal law known as the SECURE Act took effect on January 1, 2020. The new law makes changes to the rules governing retirement accounts like IRAs and 401(k) plans. Three changes that affect the most people are:
- Individuals can contribute to traditional IRAs at any age, even after they retire.
- The age when required minimum distributions begin has been raised from 70.5 to 72.
- Qualified retirement plans and IRA benefits generally have to be distributed within 10 years of the employee or IRA owner’s death.
The first and second changes are self-explanatory. However, the third change needs further explanation. Under the old rules, if a retirement account had a designated beneficiary, then the beneficiary’s life expectancy could be used to “stretch-out” the distributions of an IRA (and the tax consequences of those distributions) over the beneficiary’s remaining lifetime. The SECURE Act ends the beneficiary’s ability to “stretch-out” the distribution of the IRA, and instead mandates distribution within 10 years after the death of the owner, with a few particular exceptions, such as in the cases of a surviving spouse, a minor child, or a disabled beneficiary.
The new rules do not require annual distributions over the 10-year period, but just that everything in the IRA or retirement plan be distributed within 10 years. Some people may have created trusts that took advantage of the “stretch-out” rules by requiring annual distributions of income to the beneficiary. It might be worth reviewing your estate planning documents with the drafting attorney to make sure that the documents still achieve your goals.
Marianna is an associate at the Law Offices of J. Christopher Miller, PC. 678-746-2900 NorthFultonWills.com