Effective January 1, 2020, a new law will significantly impact your retirement accounts. This law is the Setting Every Community Up for Retirement Enhancement Act or the SECURE Act.
So what's in it for you?
The SECURE Act has several positive changes. It increased the required beginning date (RBD) for required minimum distributions (RMDs) from 70 ½ to 72 years of age. It also repealed the age restriction for contributions to qualified retirement accounts.
The most significant change that will affect the beneficiaries of your retirement accounts is that beneficiaries should withdraw the inherited account balances within ten years of the account owner's death.
However, if a beneficiary is not considered a designated beneficiary, distributions must be taken by the fifth year following the account owner's death. Common examples of beneficiaries that are not designated beneficiaries are charities and estates.
The SECURE Act does provide a few exceptions to this new mandatory withdrawal rule. This rule includes spouses, beneficiaries not more than ten years younger than the account owner, children who have not reached the "age of majority" and disabled and chronically ill beneficiaries.
What should you take into consideration?
With the old law, the beneficiaries can take the distributions over their life expectancy. While with the new ten-year time frame, the shorter withdrawal rule can cause beneficiaries to have a higher income tax bracket. The acceleration of their income tax due changes the funds contained in the retirement account. Your beneficiaries might actually receive less than what you have anticipated.
With the changes to the laws surrounding retirement accounts, now is a great time to review and confirm your retirement account information. Act now and schedule an appointment to discuss how your estate plan and retirement accounts might be impacted by the SECURE Act.