For the first time in many years, Congress has made consequential revisions to the rules governing Qualified Retirement Plans. The Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE) effects many of our clients and their heirs. Our goal is to keep the plans of all of our clients up to date with current law.
The SECURE Act raises the age at which plan participants must take required minimum distributions (RMDs) from 70-1/2 to 72. Those with earned income can continue to make contributions until that age. The Act also accelerates the speed at which heirs must withdraw funds. Previously, beneficiaries could establish a beneficiary IRA and take distributions over their lifetimes, popularly known as the Stretch IRA. Now, with the exception of spouses, funds from a retirement plan must be withdrawn within ten years of the original owner’s death. This includes ROTH IRA beneficiaries. Spouses who are named beneficiaries will continue to be able to treat their spouse’s retirement plan as their own.
The inability to stretch distributions may have negative consequences for those with considerable retirement-plan balances, unmarried couples, widows and widowers. If our beneficiaries are themselves in high tax brackets, the accelerated distribution rates may cause significant erosion of assets due to taxes. Also, many people have incorporated the Stretch IRA into their estate plans, often making their trusts either primary or contingent beneficiaries. Every person who has done so must revisit their estate plans and beneficiary designations.
SECURE has many additional provisions that are outside the scope of this letter. In the meantime, we are ready to discuss these issues with you and update your financial plans accordingly.
Your Treasure Coast Financial Planning Team