Our retirement system has been overhauled with the passing of the Setting Every Community Up for Retirement Act (“SECURE Act”) . It was tacked onto the “must-pass” 2020 spending bill that was signed by the President on Friday. The SECURE Act overhauls our retirement system. With the exception of eliminating the stretch IRA, the act is overall a positive (click here for a full summary).
A key change in the SECURE Act, and viewed by many as negative, is the elimination of “stretch” IRA from inherited retirement accounts. The result is that a beneficiary can no longer stretch the distributions over his or her lifetime. Instead, a 10-year distribution rule will require all retirement assets be distributed out of the account within 10 years of the plan owner’s death. There are some exceptions for a surviving spouse and minor beneficiaries (and some other eligible beneficiaries). This new rule applies to all retirement accounts inherited on or after January 1, 2020.
From an estate planning perspective, the elimination of the stretch presents significant changes. Here are some important considerations:
The good news is that the stretch still applies to inherited IRAs that were effective in 2019 or before.
Please reach out to your advisor about potential changes that may be needed to your estate plan following the implementation of the SECURE Act.