Likely to Change: Required Minimum Distributions

Likely to Change: Required Minimum Distributions

The House of Representatives recently passed The Setting Every Community Up for Retirement Enhancement Act of 2019, dubbing it The Secure Act for short. (The Senate has yet to produce its version.)

Under present law, required minimum distributions (RMDs) from an employer-sponsored plan don’t have to begin until after the employee’s retirement. Raising the required beginning date age helps plan participants who own more than 5% of the plan’s sponsor.

10-Year Rule Retirement accounts would be forced to distribute all benefits within 10 years after the employee or IRA owner dies. The 10-year rule and its exceptions would apply regardless of whether the employee or IRA owner dies before or after reaching the employee’s or IRA owner’s required beginning date. As many employees and IRA owners have little else to pass on to the next generation, application of the 10-year rule will seriously diminish the value of inheritances. No provision explicitly excepts trusts from any of these changes. Treasury could consider amending regulations to qualify a trust for some of the proposed statutory exception. A trusteed IRA may be needed, which might shift business away from IRA custodians.

Determining Eligible Designated Beneficiary Determination of whether a plan’s beneficiary is an eligible designated beneficiary shall happen as of the date of the employee’s death. Disclaimers will be the only means of shifting designated beneficiary status. A trustee won’t be able to influence the choice of designated beneficiary.

Charitable Giving Some will adapt to the 10-year rule by naming a charitable remainder unitrust (CRUT) as beneficiary, thus permitting tax deferral over the term of the CRUT and increasing the value realized by the non-charitable beneficiary. Present-value analysis may help establish whether the benefit to a family exceeds the application of the 10-year rule. Others may adapt by making lifetime qualified charitable distributions – direct transfers of up to $100K/year from an individual retirement account to a qualifying charity – after age 70½.

For more information, please read:
Required Minimum Distributions Likely to Change | Wealth Management


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