Retirement Account Succession Planning Post-SECURE Act

​Long ago in a far-away land before COVID-19, Congress passed and President Trump signed the SECURE Act, Setting Every Community Up for Retirement Enhancement Act.  I also recently heard a well-respected authority on Asset Protection Planning describe the Act as Setting Every Community Up for Failure Act, and other little spins on the name.  To say that SECURE’s popularity is “checkered” would be an understatement.

Love it or hate it, we must address the changes made by SECURE.  SECURE was passed in December 2020 and it completely changes the way tax laws apply to your Retirement Accounts and how they get distributed upon your death.  SECURE also changes the landscape for how trusts can be used to protect your Retirement Accounts.

Surviving spouses and disabled individuals will not see a significant change in the tax benefits they receive.  That is not the case for other beneficiaries, which are now subject to a 10-year pay-out period subject to some limited exceptions.

Important Retirement Account distribution aspects of SECURE are:
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• The new SECURE rules retain life expectancy tax deferral for Surviving Spouses, Disabled Individuals and Minor Children** (**children not grandchildren and only while under the age of majority).
• Most other circumstances result in a 10 year pay-out period.
• SECURE generally requires the entire interest in an IRA or defined contribution plan to be distributed to a designated beneficiary within 10 years after the death of the employee, whether distributions of the employee’s interests have begun.
• A new class of designated beneficiary was created for “eligible designated beneficiaries,” which include (1) surviving spouses, (2) children who have not reached the age of majority, and (3) disabled and chronically ill beneficiaries.
• Surviving spouses can still elect to delay distributions until the end of the year that the employee (or IRA owner) would have attained age 70 ½ (or age 72, as appropriate).
• SECURE is generally, applicable to distributions for individuals who die after December 31, 2019. Certain exceptions exist (e.g., governmental plans).

You should pay particular attention to these new rules if:

1. You have a Trust to hold your Retirement Accounts when you die; or
2. If you have young or disabled beneficiaries (primary or contingent) on your tax qualified accounts,
3. If you have any non-spouse beneficiary, or
4. If you want to protect your Retirement Accounts from your beneficiary’s Creditors, Predators, Divorcing Spouses and Estate Taxes

We have also seen some positive Retirement Account legislation in the CARES Act response to the COVID-19 pandemic.  CARES provides relief from required distributions, as well as penalty-free emergency access in certain circumstances.  Penalty free access to these funds and the ability to allow assets to continue growing tax deferred are important benefits you may be able to utilize.

Retirement Account Succession Planning is essential and the SECURE Act makes it essential to review your designations and ensure they are coordinated with your Estate Plan.