The 'Unsecure' Act

| January 22, 2021
Congress and the Federal Reserve acted with necessary haste last year to implement rules and policies designed to prevent economic collapse. Among those changes is the suspension of Required Minimum Distributions from retirement plans. The SECURE Act also came into effect for the first time in 2020. SECURE raised the age at which a person must take distributions to 72 (actually, the Required Beginning Date is April 1st of the year following the year a person turns 72). The Act also changes how people take distributions from retirement plans that they inherit. Spouses can still roll over a retirement plan tax-free, treating it as their own. Exemptions are also available for minor children, the disabled or chronically ill, and beneficiaries who are no more than ten years younger than the deceased owner. Everyone else has ten years to take a distribution.1
This creates a potential tax trap and planning opportunity. Previously, beneficiaries could “stretch” their IRAs by taking distributions over their lifetimes. Those who have existing beneficiary IRAs from before the Act can still do so. Ordinarily, we would notify each client every year how much they needed to take and discuss with them when they wanted to receive their funds. Now, there is no requirement to withdraw funds until ten years are up. This is where the trap comes in. Many people will need to calculate in advance how much they are likely to make each year and adjust the timing of distributions accordingly. Some people may wish to allow funds to accumulate and take one distribution at the end. This is particularly likely if income will be low then. Others may wish to take varying amounts according to their changing annual needs. Remember, we are not only concerned with taxes. This is because how much a person’s social security is taxed and how much his or her Medicare premium will be is based upon income. A big retirement plan distribution could cause a big premium.
We have a list of all of our clients who are first-time beneficiaries under the SECURE Act. We shall call each and every one of you. We would also like to discuss beneficiary designations with every client who has a retirement plan. Many clients have disabled children or health issues. Many of our clients have significant others to whom they are not married. If the ages are close, or if they have health issues, we may be able to use one of the exemptions and stretch their IRAs.
Periodically, we see people suffer the negative consequences of a failure to follow through. This truly pains us, particularly when we know that we could have helped, usually at no cost. Remember, we are here to help and we really care.
1.) CRS "H.R.1994 - Setting Every Community Up for Retirement Enhancement Act of 2019." Congress:116th Congress (2019-2020). Accessed on 01/22/2021.
The Congressional Research Service (CRS) of the Library of Congress works exclusively for the United States Congress, providing policy and legal analysis to committees and Members of both the House and Senate, regardless of party affiliation. CRS provides Congress with analysis that is authoritative, confidential, objective, and non-partisan.