The recently enacted SECURE Act has made changes to the laws affecting retirement accounts, which are both good and bad for taxpayers. In this blog I will cover the highlights of the negative changes for taxpayers.
The biggest “bad” change imposed by the SECURE Act, is the attempt to close-down or at least minimize the advantages of Inherited “stretch” IRAs and Dynasty Trusts. Prior to 2020, taxpayers with proper planning could enable beneficiaries to continue the tax-deferred benefits of an IRA long after the death of the original owner. Properly drafted, the IRA could be held in trust and paid-out over multiple generations. With minimal planning many taxpayers were able to take require minimum distributions (RMDs) over life expectancy, (rather than the decedent’s life expectancy) or possibly defer distributions until their own required beginning date (RBD), (70 ½ under the old law).
Under the SECURE Act, only surviving spouses, disabled individuals and beneficiaries who are less than 10 years younger than the decedent are able to take taxable distributions over their own life expectancies. All others must take distributions within a maximum of 10 years after the owner’s death.
There is an exception for minor children (not grandchildren). They can use their own life expectancies for taking distributions, however, upon reaching the age of majority (18 or 21 depending on state law) they must follow the 10-year rule.
For information on the good news for taxpayers under the SECURE Act, please see my separate blog article entitled The SECURE ACT – The Good News.
Joseph W. Kenny is a director and shareholder of Hamblett & Kerrigan, P.A. and practices in the areas of estate planning and taxation. He is also a Certified Public Accountant with certification as a Personal Financial Specialist. You can reach Attorney Kenny by email at [email protected].