President Donald Trump just recently signed the Setting Every Community Up for Retirement Enhancement Act of 2019.
The SECURE Act was passed by Congress only last previous weeks and received the president’s signature nearly as soon as it hit his desk. Expect big changes ahead, and soon.
January 1, 2020 was the finish line for this far-reaching legislation, so financial professionals must get up to speed post-haste. First up: for IRAs, while the stretch may not be dead, it’s certainly losing its vitality. The stretch involved naming a very young beneficiary – often a grandchild – in order to minimize the required minimum distribution (RMD), thereby keeping the IRA productive for a much longer period.
The SECURE Act will require IRA beneficiaries to drain the account within ten years of the purchaser’s death. Planners may be able to circumvent this requirement, in some cases: many beneficiaries fall into exempt classes, including spouses, the disabled and more. For them, the old rules will still apply. The stretch will nevertheless lose most of its utility, but there’s a silver lining: RMDs will not be required during the 10-year window, introducing planning flexibility on how to withdraw and use the IRA funds.
Caveat: these provisions don’t apply to IRAs inherited before Jan. 1, 2020. Those policies will still be governed under the old rules.
The Act includes a somewhat happier provision for planners: the old requirement for RMDs to be taken starting at age 70½ has been altered: the starting line has been moved to age 72, which certainly makes planning easier. We wonder how the arcane earlier limit – something that would make sense in an era before the decimalization of currency, perhaps – was ever enacted, but this is government work, after all.
For more information, please read:
What Advisors Need to Know About the SECURE Act | Wealth Management