3 Important New Rules for Retirement Accounts and How They Affect Your Estate Plans
By: Solid Serenity Legal Solutions
With the new year and new decade, came new individual retirement account (IRA) rules. The Setting Every Community Up For Retirement Enhancement (SECURE) Act went into effect January 1, 2020.
The Act made significant changes to how retirement accounts must be treated when the owner dies. These new rules may lead you to change your estate plans and strategies for your family’s future.
Here are 3 important new rules for retirement accounts and how they affect your estate plans.
(1) Increasing the Age of Required Minimum Distributions
Beginning January 1, 2020, the age people have to take out required minimum distributions increased. In previous years, owners had to begin taking distributions at 70 1/2. Now, the required age has been raised to 72.
If you turned 70 1/2 before December 31, 2019, the new rule doesn’t apply to you.
Estate Planning Considerations:
Make sure to review your beneficiary forms for your IRAs. Also, have a trusted advisor look over your Wills and Trusts to make sure they still meet your goals.
(2) No More Age Restrictions on Contributions
Before January 1, 2020, those over the age of 70 1/2 were prohibited from making contributions to their IRAs. Now, there are no age restrictions on contributions. So, if the owner continues to work and earn income past the age of 70 1/2, they can continue to make retirement account contributions.
Estate Planning Considerations:
With the possibility of greatly increasing your IRA benefits, you will need to consider how that impacts your family and your estate planning goals. Review your beneficiary designations and your Wills and Trusts with a trusted advisor to ensure they still meet your goals.
(3) Ending the Stretch Out Provisions
In the past, owners could pass their IRA money onto non-spouse beneficiaries who could take withdrawals based on their own life expectancy. The SECURE Act puts a limit on taking withdrawals for non-spouse beneficiaries to 10 years after the owner’s death. There are some exceptions to this rule.
Exceptions:
Exceptions to the 10 year withdrawal rule include:
(1) Chronically ill heirs (defined by Section 72(m)(7))
(2) Disabled heirs (defined by 7702(B)(c)(2))
(3) Minor children (only applies until they reach age 18)
(4) spouses
Estate Planning Considerations:
As with the other changes, owners will want to revisit their beneficiary designations and Wills and Trusts concerning IRAs in light of the new rules. Some options may include creating a series of Trusts to distribute the assets until your intended beneficiary reaches the age you are comfortable with, leaving assets to a Charitable Remainder Trust, and considering replacing the IRA funds the owner desires to leave to heirs with life insurance proceeds.
To learn more about other considerations when making your estate plan, click here.