Somewhat surprisingly, Congress has very recently passed some significant legislation affecting Retirement Plans that the President is expected to sign-commonly referred to as the SECURE Act. The new Act is designed to be effective January 1, 2020.
This is essentially the same Bill that the House had passed by a vote of 417-3 earlier this past summer. It had seemingly lost all momentum towards passage but was added to a year end appropriations bill.
Articles we have seen in the mainstream press have largely ignored the Bill’s most significant provisions for our clients, i.e., the removal of “Stretch Inherited IRA” provisions for non-spouse beneficiaries.
Those other portions of the Act that are getting press include its design to increase small employer access to retirement plans for their employees, to increase the offering of annuity options within retirement plans, to increase the age for participants’ commencement of minimum distributions from age 70-1/2 to age 72; and toremove the age limitation (of 70-1/2 years) for making traditional IRA contributions. If you are not a small employer, and not in your 70's, it might seem the Act will not disrupt your planning.
However, the removal of “Stretch Inherited IRA” provisions for non-spouse beneficiaries is HUGE news for many of our estate planning clients. If you are a participant in a Qualified Retirement plan (401(a), 401(k), 403(b) and others) or in an IRA, and if you have made well-reasoned choices as to how you might name beneficiaries for the plan, the enactment of the SECURE Act will in many cases change the planning environment significantlyenough that you will want to review, and in many cases, change those choices.
[Note: The law does not change the existing stretch treatment for IRA’s or other qualified retirement accounts inherited from decedents dying before 12/31/2019. These will be grandfathered.]
The SECURE Act does not change the tax treatment of naming your spouse as an outright beneficiary, in your spouse’s lifetime, so you might feel like you have some breathing room, BUT anyone who has made this choice will also have been advised to make careful choices of contingent beneficiaries - if your contingent beneficiaries are not 100% to charities, those choices may be affected. And the tax law changes that impact your choice of contingent beneficiaries may in turn (THERE ARE ALWAYS TRADE-OFFs) affect your choice respecting the selection of your spouse as primary beneficiary, and so forth.
Determining what needs to be “fixed” in any particular case is beyond the scope of your alert, but please rest assured that the Estate Planning Lawyers at Walker Lambe are studying the new Act’s provisions to be ready to advise you.If you need help with estate planning matters, contact Walker Lambe, PLLC at (919) 493-8411 to speak with our team today.