Important Information Regarding Estate Planning for Your IRA and Retirement Assets

The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, which became effective January 1, 2020, has significantly changed estate planning with respect to retirement benefits. Most notably, prior to passage of the Act, an individual, and certain trusts for an individual, designated as a beneficiary, could “stretch” the required minimum distributions over the beneficiary’s life expectancy. The SECURE Act abolishes the “stretch” for all but a few beneficiaries and generally requires payout within a maximum of 10 years. Beneficiaries and trusts for beneficiaries that may still qualify for the “stretch” include a surviving spouse, a disabled or chronically ill individual, and an individual less than 10 years younger than the participant. A trust for a minor child may permit a “stretch” during the child’s minority with pay-out within 10 years after reaching age of majority (age 21). As under the prior law, naming your estate as beneficiary (or a trust without a designated beneficiary) will generally require payout within 5 years. Accordingly, designating beneficiaries of retirement accounts needs greater consideration under SECURE.

The SECURE Act also increased the age at which participants begin receiving required minimum distributions from 70½ to 72. The tables for calculating these distributions also changed in 2022. These changes allow for greater deferral of retirement benefits to participants.

We believe it is important that your estate plan be reviewed in light of these changes to ensure that your beneficiaries will achieve maximum tax deferral, to minimize negative income tax consequences and avoid other unintended effects. For example, depending upon your personal circumstances, we might recommend several alternatives to offset the income tax resulting from the inability to “stretch”, such as Roth conversions, charitable remainder trusts, or a life insurance replacement policy, and the possibility of eliminating or amending your trusts to ensure that they comply with the provisions of the SECURE Act.

If you have any questions about the SECURE Act and how it affects your estate planning, please call for an appointment with any of our experienced and capable estate planning attorneys, Leonard J. Witman, Catherine Romania, Tara S. Sinha, Julie D. Rosen, or Jonathan Pollack.