On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law with an effective date of January 1, 2020.  The Act includes a number of beneficial changes:  the required beginning date for required minimum distributions has been increased from 70.5 to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts.  A significant change that will impact account beneficiaries is the new requirement that the entire balance of an inherited retirement account must be withdrawn within ten years of the account owner’s death.

While this new rule will result in additional tax liability for many beneficiaries of inherited retirement plans, there are some classes of beneficiaries who are exempt from the 10-year withdrawal mandate:

  • Spouses
  • Beneficiaries who are not more than 10 years younger than the account owner
  • The account owner’s children who have not reached the “age of majority”
  • Disabled individuals
  • Chronically ill individuals
In light of these exceptions and the elimination of the “stretch” for many classes of beneficiaries, a number of factors must be considered in order to properly incorporate a person’s qualified retirement plans into his or her estate plan.  Account owners must consider tax implications, special needs planning, charitable intent, and non-tax issues such as protection of inherited retirement plans from creditors (e.g. divorce, bankruptcy, lawsuit).

Addressing these complex issues requires a sophisticated understanding of tax laws, the SECURE Act, and estate planning concepts.  Accordingly, individuals who own significant qualified retirement plans should seek out advice from a knowledgeable estate planning attorney regarding changes to legal documents and beneficiary designations.