estate planning for SECURE Act

What Is the SECURE Act?

This year, a very important piece of legislation was signed into law. The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) was passed by the House of Representatives in July of 2019. It was later approved by the Senate in December of the same year as part of a year-end appropriations act. It was signed into law by the President the next day. This act stands to have far-reaching implications on individual retirement plans and also estate plans. Here, we will go into more detail on some of the key provisions of the SECURE Act.

What Is the SECURE Act?

The focus of the SECURE Act was really attempting to address the problem that so many seniors in the U.S. are outliving their savings. That is why the Act aims at increasing access to tax-advantaged accounts as well as making significant changes to long-term retirement savings. Among the key provisions is expanding eligibility to participate in employer retirement plans to a lot more part-time workers. 

It also works to help small business owners more easily set up “safe harbor” retirement plans that are both less expensive and can be administered with greater ease. Under the SECURE Act, small businesses can automatically enroll workers in safe harbor retirement plans, such as 401(k)s, at 15%. This is an expansion on the previous cap of 10%. Furthermore, the SECURE Act provides a $500 maximum tax credit each year to employers who establish a 401(k) or SIMPLE IRA retirement plan that has automatic enrollment.

Under the SECURE Act, 401(k) plans can now offer annuities. In fact, the Act encourages employers to include more annuities in 401(k) plans. The Act encourages this by addressing some of the fear associated with an employer including more annuities in 401(k) plans. It also lifts the requirement that an employer requires the selection of the lowest-cost plan available. 

There are also several key provisions of the SECURE Act relating to already existing retirement accounts. For instance, the AC increases the age where retirement plan enrollees will have to take required minimum distributions (RMDs). The age was increased from 70.5 to 72. Also, owners of traditional IRAs are now allowed to continue making contributions indefinitely.

Another key provision of the SECURE Act relates to stretch IRAs. Now, stretch IRAs are not allowed. In the past a stretch IRA permitted non-spouses, such as children, that inherited retirement accounts to stretch our disbursements from the account over the course of their lifetimes. Now, with new rules in place, a non-spouse who inherited a retirement account must take a full payout from the account within 10 years from the death of the original account holder. The elimination of the stretch IRA will main approximately $15.7 billion in tax revenue for the federal government. The new rule will only apply to those who inherited accounts from people who died in 2020 or thereafter.

Estate Planning Attorneys

It is often the case where legislation can have far-reaching impacts on people across the country. The SECURE Act is one such piece of legislation. It also stands to have significant impacts on estate planning for many. The trusted estate planning attorneys at OC Wills & Trusts can discuss how to evaluate your estate plan in light of the SECURE Act. Contact us today