The SafeEstates Blog

SECURE Act: Time to Revisit “Trust as Beneficiary” of Retirement Accounts

The SECURE Act was signed into law on December 20,2019 to take effect on January 1, 2020. Although the SECURE Act makes six or more key changes relating to retirement accounts (traditional IRAs and 401(k)s), we will mention two and focus on one of them. If you have a large retirement account and you have named a trust for your children as beneficiary of the retirement account, you will want to read this article closely. Keep in mind this is a brand new law and it may take a while for estate planning professionals to collaborate and develop new strategies.
First, the SECURE Act increases the required minimum distribution age for retirement accounts from 70 ½ to 72 for those who reach 70 ½ after 2019. This seems like a small change but it likely impacts the plans of many workers. Should I stay the course and start withdrawing money from my retirement account at age 70 ½? Should I keep working to age 72 and let my retirement account grow an extra year or more before I begin withdrawals? Should I put less money in my retirement account? Should I convert my retirement plan to a Roth IRA?
Second, the SECURE Act removes “stretch” provisions for non-spouse beneficiaries of inherited retirement accounts. Previously, when a retirement account owner died naming one or more individuals as beneficiaries, the beneficiaries each could “stretch” their taxable withdrawals (RMDs) from the retirement account over their individual life expectancies. In many cases, the account owner named a trust as beneficiary to prevent the individual beneficiaries from withdrawing more than their RMDs. Under the SECURE Act, the beneficiaries have 10 years to withdraw the entire account balance. Surviving spouses and minor children are exceptions (still may withdraw RMD based on their life expectancy in most cases).
If you have named a trust as beneficiary of your retirement account, or if you have named your children as beneficiaries of your retirement account, our advice is to review your trust and your retirement account beneficiary designations. Please contact us to discuss your options so you can feel SECURE you have identified the solution that is best for your circumstances.
~ Randy Hooper