On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act, which is effective January 1, 2020, is the most impactful retirement legislation of the past decade.
Here are a few major provisions of the SECURE Act:
- Increases the age for required minimum distributions (RMDs) from retirement accounts from 70 ½ to 72 years of age
- Eliminates the age limit for contributions to traditional individual retirement accounts (IRAs) Expanded the allowable uses of 529 accounts
- Increases annuity options in retirement plans
- Adds a new exemption allowing penalty-free withdrawals—up to $5k— from retirement accounts for the birth or adoption of a child; and
- Eliminates the “stretch” IRA for most non-spouse beneficiaries: certain beneficiaries are now required to withdraw inherited account balances within 10 years of the account owner’s death.
The SECURE Act does provide a few exceptions to this new mandatory ten-year withdrawal rule: Spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not yet reached the “age of majority,” disabled individuals, and chronically ill individuals may still benefit from the pre-Act withdrawal rules to stretch the RMDs over their life expectancy. (Note: If a beneficiary is not considered a “designated beneficiary”, i.e. charities or an estate, a mandatory five-year payout will still apply.)
These changes warrant re-consideration of planning with retirement assets. Trusts with accumulation provisions, that will not force out distributions to beneficiaries, should be considered to help protect the retirement account funds from a beneficiary’s creditor, future lawsuits or the no. 1 most common creditor….a future ex-spouse.