The new “Secure Act” legislation expected to be passed by Congress will affect estate planning & retirement planning in 2020 and beyond.

As part of the late 2019 pile of bills expected to be passed to keep the government open, it is anticipated that Congress will pass a bill that will affect the retirement savings of many Americans.  In some cases, it will have an adverse effect on a common financial planning/estate planning technique commonly referred to as “stretch planning”.

The Setting Every Community Up for Retirement Enhancement Act (i.e. the “Secure Act”) has been in the planning stages for several years.  The following are some of the more important features of the bill, including:

• Removing the age limit restricting IRS contributions from 70 ½ to 72;
• Raising the age at which people need to start taking required minimum withdrawals from 70 ½ to 72;
• Liberalizing the 529 Plan to permit up to $5,000 in withdrawals to pay college loan debt; and
• Limiting the loophole that permits more affluent investors to name younger beneficiaries such as children or grand-children to effectively “stretch out” the withdrawals of inherited IRAs or 401ks.

Today IRAs can be stretched out over the lifetime of the beneficiaries’.  If used properly and with the guidance of financial and estate planning professionals (for use with a qualified trust as a beneficiary), this “stretch planning” technique can provide decades of tax-deferred (or tax-free in the case of Roth IRAs) compounding. Instead, most IRA beneficiaries (other than a surviving spouse or minor or disabled child) would be required to deplete an inherited IRA within ten (10) years.  This acceleration will likely push beneficiaries of inherited IRAs into a higher marginal tax bracket and increase the taxes owed.  It may also hamper creditor protection strategies using IRAs in trust. 

For estate planning clients with large retirement account balances it will be increasingly important to evaluate the tax consequences to the named beneficiary.  For example, perhaps naming children together with grand children or charities will make more sense to increase tax planning opportunities.

For more information on planning for retirement, planning in the context of estate planning, or general estate planning and administration, probate or trust matters please contact the attorneys at Welts, White & Fontaine PC.  Please contact us by clicking here or by calling (603) 883-0797. Welts, White & Fontaine is one of Nashua’s largest, multi-practice law firms and serves the legal needs of both individuals and businesses in towns such as Amherst, Milford, Hudson, Brookline, Windham, Hollis, Merrimack, Litchfield, Bedford, Londonderry, Pelham, and, of course, Nashua.

Author: John S. Polgrean, Esq.

This blog is intended for informational use only. The information contained herein should not be construed as offering legal advice or a legal opinion.