Just last month, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. This piece by Lord Abbett does a great job outlining the specific changes that will expand retirement plan coverage and savings opportunities – including that you can now contribute to a traditional IRA at any age and required minimum distributions have been delayed from 70-1/2 to age 72
At Carey & Hanna, we see two significant ways the SECURE Act could affect your financial plan. In light of the law changes, you might want to:
Adjust the timing of your withdrawals. If you recently turned 70-1/2, and 2020 was to be your first year taking a required minimum distribution, consider whether it still makes sense to do so. An additional year and a half of contributions might be more beneficial for you, but it’s important to consider your lifetime tax costs – not simply the year in which you’ll take a distribution. Currently, tax rates are very favorable, but they’re also set to revert to previous, higher rates in 2026. So, it might be more advantageous to take withdrawals earlier – before they’re required – so you benefit from the lower tax bracket.
Re-evaluate plans for gifts from your estate. Retirement accounts are included as a part of your taxable estate and may be inherited by your designated beneficiaries. Previously, those beneficiaries could stretch the IRA over their lifetime – taking only a required minimum withdrawal annually and avoiding penalties. However, the SECURE Act did away with the lifetime stretch option (unless inherited by a spouse or minor), and therefore, an inherited IRA cannot be used by beneficiaries as reliable income for the remainder of their life. If the IRA owner dies on Jan. 1, 2020 or later, the IRA must be distributed to beneficiaries in full within 10 years, but there is no annual minimum distribution required. Inherited IRAs held by someone who died before 2020 are grandfathered in and can still be stretched across the beneficiary’s lifetime. Because of this change, we recommend you review your estate gifting plan and confirm beneficiaries on your IRAs. There may be opportunities to title things differently, expedite large gifts or explore supplemental products that can offset the loss of the lifetime stretch. I would not be surprised if we begin to see new annuity products to help fill this gap. Therefore, working with a financial advisor who has knowledge of insurance products could be helpful in this arena.
Without a doubt, the SECURE Act is a significant piece of legislation that has immediate and long-term advantages for investors. As you prepare for retirement and beyond, be sure to work with a tax-integrated financial planning team – like us at Carey & Hanna – to leverage the SECURE Act for your greatest benefit.