Insights
Client Alert: The SECURE Act May Impact your Beneficiary Designations
By Lori R. Kilpeck on August 21, 2020
The first half of 2020 has been an unexpected whirlwind starting with the enactment of the SECURE Act which went into effect on January 1, 2020. The Setting Every Community Up For Retirement Enhancement (SECURE) Act made significant changes with respect to retirement plans which could impact your current beneficiary designations. A brief summary of the major changes are as follows:
- The beginning age for taking required minimum distributions (RMDs) from tax-deferred retirement accounts increased from the age of 70½ years old to 72 years old. It also should be noted that the Coronavirus, Aid, Relief and Economic Security (CARES) Act enacted on March 27, 2020 in response to the pandemic, suspended required minimum distributions for the 2020 calendar year. Unfortunately, by the time the CARES Act became law, some taxpayers had already taken a portion or all of their 2020 RMD and could not necessarily return the funds withdrawn under the rules in existence at the time the CARES Act was enacted. The IRS in a recent Notice (Notice 2020-51) provides some relief to taxpayers who have withdrawn some or all of their 2020 RMD. The IRS has waived the rule that there can be only one rollover per 12 month period and it allows rollovers for inherited IRA distributions as well. However, if a taxpayer desires to refund his or her retirement account with an RMD previously withdrawn in 2020, the taxpayer must complete the rollover by August 31, and the amount that is being refunded as a rollover is limited to what was taken out as a RMD.
- An individual who continues to work can contribute to a traditional IRA past the age of 70½ years old.
- The SECURE Act eliminated the stretch IRA for certain beneficiaries. Under the prior law, after the death of a plan participant or IRA owner, a non-spousal beneficiary was permitted to stretch the required minimum distributions over the beneficiary’s life expectancy. Under the new law with certain exceptions, all amounts held by the plan or IRA must be distributed by the end of the 10th calendar year following the year of the employee or IRA owner’s death rather than over the beneficiary’s remaining life expectancy. There are exceptions to this new rule for retirement accounts which name an Eligible Designated Beneficiary (EDB) such as a surviving spouse, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority. Thus, in most situations a retirement account payable to anyone other than to a surviving spouse will require the retirement account to be completely paid out within ten (10) years after the account owner’s death. A surviving spouse who is directly named as a beneficiary will still be able to do a spousal rollover and defer withdrawing RMDs until he or she has attained age 72.
We are strongly advising you to review your current beneficiary designations and estate plan, particularly if you have named your trust as a designated beneficiary of your retirement account. Please contact any member of our team at Brouse McDowell with any questions or concerns.
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