On December 20, 2019, the bipartisan “Further Consolidated Appropriations Act, 2020” which includes the “Setting Every Community Up for Retirement Enhancement Act of 2019,” also known as the “SECURE Act” (the “Act”) was signed into law. The Act is poised to dramatically overhaul many aspects of retirement planning in the United States.The enactment of the Act marks the death of “stretch” distributions for inherited IRA beneficiaries. Previously, individuals who inherited an IRA were permitted to “stretch” distributions over their respective lifetimes. This stretching allowed for significant tax deferral because an individual could spread the receipt of taxable income across many years.
The Act eliminates the stretch provisions that were previously available to IRA beneficiaries (other than surviving spouses, chronically ill, disabled individuals, and minor children who are excluded until they reach the age of majority accordingly to state law). Now, all other non-excluded beneficiaries of inherited IRA accounts are instead given a period of no more than ten years to withdraw all funds from any inherited IRA account. This change (1) provides an influx of tax revenue for the federal government, and (2) requires professionals to examine how IRA account beneficiaries, including trusts, need to adapt in the face of accelerated distributions.
The Act also allows for individuals to continue to contribute to their IRA accounts after attaining age 70½ and increases the age upon which required minimum distributions must be taken from such accounts from 70½ to 72. Worth noting on this point is that there is additional pending legislation that would further increase such age to 75.
Legislative Update: Appropriations Act Passes Bringing Drastic Changes to Retirement Accounts and the Need to Revisit Estate Plans