SECURE Act - Searching for a Stretch
The SECURE Act, short for Securing Every Community Up for Retirement Act of 2019, took effect in January 2020. Congress’ intent in passing the SECURE Act was to expand retirement options, particularly 401(k)s through small businesses and for part-time employees. Further, it opens avenues to protect retirement income by offering annuities through 401(k) plans. This means….Other improvements include postponing the required minimum distribution (RMD) age to 72. It also allows traditional IRA owners to make contributions indefinitely. All of these changes are geared to help Americans grow and preserve their retirement accounts.
For all the good the Act brings, it did eliminate what was colloquially known as the Stretch IRA. What exactly was the Stretch IRA? The Stretch IRA was a strategy used to expand the distribution timeline and reduce the tax burden of a non-spouse that inherited a Traditional IRA. Using the previous guidelines, a non-spouse inheriting a Traditional IRA would take distributions at a rate based on their life expectancy and not the original account owner’s.
Stretching out the distribution timeline allowed the new owner to essentially defer taxes, while simultaneously allowing the investment to grow. This strategy was radically altered under the SECURE act, which requires a non-spouse inheriting an IRA to distribute the full value within ten years of the date of inheritance. Doing so creates a multitude of tax consequences and ultimately benefits the government in new revenue generation. Please note, this does not impact those non-spouses inheriting before January 1, 2020. It also will not apply to a list of excepted recipients, including spouses, children who have not reached the age of majority, disabled or chronically ill, or similarly aged recipients. No matter what your current situation or designation, there are still workarounds and innovative ways to tax plan for your estate, regardless of estate size. It is more important now than ever to review your beneficiary designations, asset blends, and overall family plan.
Contact us today at 724-550-6970 or info@theskeenfirm.com if you have questions regarding your estate plan and how the SECURE Act will benefit or impact your particular situation.
*Disclaimer: this article is for informational purposes only. It is not providing legal advice. It does not create an attorney-client relationship.