The New SECURE Act: Protecting Your Beneficiaries
- The new SECURE Act was passed on December 20th, 2019, and it affects retirement distributions.
- There are both positives and negatives associated with the SECURE Act.
- The new rule took effect on January 1st, 2020, and it’s a good idea to know what it means for you and your beneficiaries.
There’s a new act that was recently signed into law by President Trump and which took effect on January 1st, 2020. It’s called the SECURE Act, and it stands for Setting Every Community Up for Retirement Enhancement. There is both good and bad news associated with it, and you’ll want to be aware of how it may affect you and your beneficiaries.
Let’s start with the good news: if you’re in your 60s and approaching the age of 70, you now have until age 72 before you have to take out mandatory distributions from your retirement account. To be exact, if you turn 70 ½ in 2020 or later, you may wait until you turn 72 to start mandatory distributions. However, if you’ve already turned 70 ½ prior to the start of 2020, you’re subject to the old schedule of taking mandatory distributions at the age of 70 ½.
This is good news because, if you’re not yet 70 ½, it helps you to save more money for retirement, and you can now take the money out less quickly, which means more tax deferment.
So, what’s the bad news? The bad news is for your beneficiaries, particularly those who inherit a large IRA. They will be required to take the funds out over the course of 10 years. They can choose to do so any way they like (e.g., 10% each year, all of it out in the first year, all of it out in the 10th year, etc.), but they must drain and close the account by the end of the 10th year.
Why is this a big deal? Well, say you have a child or grandchild who’s 40 years old. Under the prior law, they only had to take out roughly 2.5% and they had up to 40 years before they had to drain the account. For those beneficiaries who were 60 years old, that minimum was still only 4%. That’s quite a bit different than the new law which could make for some big tax consequences.
If you have a very large IRA or qualified plan, this will make a big difference for those who inherit it upon your death. You may want to consider planning and making some changes in order to mitigate the tax.
To learn more about how this new law may affect your beneficiaries, read this MarketWatch article. Until next time, enjoy.
Gary Klaben is in our Glenview, IL office and serves our clients who are now located all over the country. He has over 30 years of experience and is the author of Changing the Conversation, Wealth of Everything and co-author of The Business Battlefield. Whether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.
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