The Setting Every Community Up for Retirement Enhancement Act, otherwise known as the SECURE Act, was passed by Congress and signed into law on December 20, making it effective immediately. This law marks the broadest piece of retirement legislation passed in 13 years. The Act is comprised of 29 provisions covering a variety of enhancements to qualified plan rules. The impact of the new legislation, however, is significant and can vastly impact a person’s estate plan.
One of the most consequential provisions of SECURE is the elimination of the “stretch provision” for inherited IRAs. Previously, IRAs and other qualified plans left to a nonspouse beneficiary could be withdrawn over that beneficiary’s life expectancy. Many estate plans even utilized specially drafted trusts as beneficiaries of retirement accounts in an effort to take advantage of the delayed distribution rules to preserve assets for the benefit of children and grandchildren. The Act now requires that nonspouse beneficiaries (with some exceptions) must completely withdraw all plan assets within 10 years of the date of death. The effect of this new mandate not only may result in significant tax ramifications for those inheriting IRAs, but could also defeat the intended benefits and goals of many existing estate plans.
In light of the recent changes, it is recommended that every plan holder consult with a qualified professional to carefully review their wishes and how their estate plan may be affected. This may result in the revision of beneficiary designations, wills and trusts.