New Tax Law could impact your Estate Plan

On December 20, 2019, President Trump signed into law the SECURE Act, an acronym for Setting Every Community Up for Retirement Enhancement. This Act is interesting due to the fact that it is the broadest piece of retirement planning legislation in 13 years. The Act attempts to enhance retirement savings for the older work force, and like most legislation, will impact investors and taxpayers in a few areas. The purpose of this article is to highlight some of the consequences from this tax law to retirement and estate planning.

The Required Minimum Distribution Age has been increased

Effective for tax years after 2020, the required minimum distribution (RMD) start date is age 72, instead of the awkward age of 70 ½ (I have yet to attend a birthday party for someone turning 70 ½) that has existed since the beginning of the RMD rules. As a result, the SECURE Act will give investors extra time to allow IRAs and other retirement plans to grow without being subject to distributions and taxes.

Additional time to contribute to your retirement plan

Prior to the SECURE Act, you could not contribute to a tax-deductible IRA after you turn age 70 ½. Now, however, you can still make contributions into a deductible IRA as long as you have earned income. For example, a couple over age 70 ½ will be able to contribute up to $14,000 (up to $7,000 each) in the year 2020 and take a deduction if either spouse is working.

SECURE Act may impact whether you can “stretch” your IRA

Prior to the SECURE Act, a common estate planning technique was to leave one’s traditional IRA to a beneficiary, who would then “stretch” the IRA by taking RMDs over his or her life expectancy. Starting in 2020, certain beneficiaries (not including surviving spouses, minor children, and those who are not more than 10 years younger than the deceased) will not be able to stretch their IRA by using their life expectancy for distributions, but instead will need to take distributions out of their IRAs over the maximum of a 10-year period.

So, for those with carefully planned trusts and estates, what needs to be done? First, IRA beneficiary designations should be reviewed to make sure they still make sense under the new tax laws. Secondly, if you have a trust that is being used as the IRA beneficiary, sometimes referred to as an IRA Conduit Trust, it is very likely that the trust will not be compliant with the new distribution rules of the SECURE Act.

Your estate plan may be Impacted

If you have any questions regarding the impact to your estate plan from the SECURE Act, please contact attorney Greg Reymann at 727-456-8970 to review your retirement situation and estate plan.

Gregory Reymann

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