SECURE Act
The SECURE (Setting Every Community Up For Retirement Enhancement) Act became law on December 20, 2019. Since then, people have been asking, “What do these changes about IRAs and retirement accounts mean for me?” *Disclaimer - The below is not tax advice and should not be relied on to avoid tax penalties. Make an appointment with your CPA, CFP or tax attorney for advice specific to your situation.* If you fit one or more of the below 7 descriptions, then you might have a reason to make some changes in your financial plan from the SECURE Act. (In the descriptions, “retirement account” refers to IRAs, SEP-IRAs, 401Ks, 403Bs, SIMPLE-IRAs or other qualified retirement accounts. It does not refer to Roth IRAs.) 1. You have a fairly large retirement account that you don’t need. You are planning on leaving the bulk of it to your kid(s). If this is you, there may have been very little discussion in the past with your financial planner, CPA or estate planning attorney about it. That’s because, before the SECURE Act, when younger people inherited a retirement account, their required minimum distributions (RMDs) from that IRA were based on their remaining life expectancy. This would make their RMDs relatively small. So, tax-wise, leaving a retirement account to a younger person made sense. There wasn't much to discuss. But now, when your kid(s) inherit the account, they must take the entire balance over 10 years. This could be a significantly different tax story, especially if your kids are in high tax brackets themselves. Example with a $2,000,000 IRA and 2 kids in their late 40s: Each kid inherits $1,000,000 ($2,000,000/2). Their old RMD would have been - very rough guess - about $35,000 each in the first year. Under the SECURE Act, each kid must take their entire inheritance within 10 years. Whether they take 1/10 each year, or some other schedule, this could make a giant difference in the portion of their inheritance shared with Uncle Sam. The point is, leaving a large retirement account to the kids isn’t a tax no-brainer anymore. It might make sense to look at the tax impact of all of your assets, spend down the IRA faster, perhaps convert all or part of it to a Roth, and leave the kids something more tax-friendly. Many planning professionals should be addressing this topic in 2020 and beyond. 2. Your estate planning attorney, CPA, or tax attorney advised you to name your trust as a primary or contingent beneficiary of your retirement account(s). With the change in the distribution rules, this advice may change. It's important to check in and ask them. 3. You are part of or own a small business that does not have a retirement plan because it's a ton of paperwork. There is now an expanded tax credit for small businesses to set up a retirement plan. If you haven't set one up or your employer hasn't, there are new incentives to go through the paperwork (which…