Tuesday, January 14, 2020
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect January 1st of 2020 and for the foreseeable future drastically changes estate planning with retirement plans. Prior to the Act, beneficiaries could stretch out the distributions from an inherited IRA over thir lifetime to get the tax-deferred benefits. That is no longer the case and many may need to review their plans.
Now most inherited retirement plans must be fully distributed within 10 years of the participant's death, unless they fit into these 5 categories: (1) the participant's spouse; (2) the participant's minor children; (3) disabled beneficiaries; (4) chronically ill beneficiaries; and (5) beneficiaries less than 10 years younger than the participant. A surviving spouse can also still roll over inherited benefits into their own IRA.
Conduit trusts may become a relic under the Act as they could cause punitive income tax consequences. Also, trusts with conduit provisions no longer provide the long-term control or protection of retirement benefits and their proceeds for beneficiaries that many plan participants previously expected. An accumulation trust could still be an option for plan participants which allows the required distributions to collect inside a trust, with the trustee maintaining discretion regarding distributions to trust beneficiaries. The retirement account must still be fully distributed to the trust within 10 years.
See Sarah B. Bowman and Catherine (Cat) N. L. Connell, New SECURE Act Affects Estate Planning for Retirement Plans, K&L Gates Hub, January 13, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.