How might the SECURE Act alter the setup of my trust?
President Trump recently signed the Setting Every Community Up For Retirement Enhancement (SECURE) Act. This sweeping piece of legislation will bring about the most significant changes that the field of retirement law has seen in the past 13 years. One critical portion of the Act could have significant import on your trust. Anyone with an IRA or another employer-sponsored retirement plan who has a trust as the beneficiary will want to closely review the language of their trust to determine whether the trust under the SECURE Act still meets your goals. Our Orange County, California trusts and estate planning attorney discusses the changes brought about in the SECURE Act and how it might impact your trust below.
The SECURE Act Summarized
The SECURE Act will institute several major changes to the field of retirement law. There are several ways in which the SECURE Act could affect those nearing retirement age. First, the Act pushes out the age at which you must take the required minimum distribution (RMD). Previously, traditional IRA or employer-sponsored retirement plan recipients had to make withdrawals at the age of 70 ½. Now, recipients can take withdrawals at the age of 72, which allows for additional time to grow their account.
Next, the SECURE Act allows you to contribute to your IRA after the age of 70 ½. This is quite meaningful for those who plan to continue to work into their 70s. Further, the law will offer you more time to convert your traditional IRA into a Roth IRA, which may lower your tax obligations. Additionally, the law will encourage employers to create retirement savings plans for their employees.
Removal of the Stretch Provision
While the above terms of the SECURE Act have largely been lauded as bringing about positive change, the next provision could have a negative impact on some recipients. The SECURE Act has removed the so-called “stretch” provision for many beneficiaries of IRAs and other contribution plans like 401(k)s. In the past, an IRA beneficiary could stretch out the RMDs over the course of their lifetime in order to maximize tax savings. Now, most IRA beneficiaries will need to take the entire inherited amount within 10 years after the IRA owner’s death.
Many people set up trusts to be the recipient of IRA and other retirement accounts, using the pass-through feature which allows the beneficiary to stretch out the tax benefits. Further, the trust protected the funds from creditors by limiting the access of heirs to just the RMD due each year.
Now, all funds will need to be withdrawn after the 10th year of the owner’s death, which may alter the goal of your trust and require alterations be made to the language of the trust to better accomplish your goals. Contact an estate planning attorney for assistance with reviewing and editing your trust as needed.