Effective January 1, 2020, a newly passed federal law known as The “SECURE” Act (Setting Every Community Up for Retirement Enhancement) changes some key factors relating to estate and retirement planning.

Positively, the SECURE Act delays the required start of required minimum distributions on tax-deferred retirement accounts from age 70.5 to age 72.  Furthermore, once the required minimum distribution age is reached, unlike in the past, individuals may continue to make contributions to an IRA if the Participant is still receiving earned income.

In large part, however, the SECURE ACT is designed to be a tax generating measure for the federal government.  The SECURE Act is expected to generate $16.4 billion in taxes over the next 10 years.  One of the primary tax-generating features of the SECURE ACT is the elimination of the “stretch-out” provisions for tax-deferred retirement accounts.

Prior to the passing of the SECURE Act, one of the valuable benefits of careful estate planning was to preserve and continue the tax-deferral benefit of qualified retirement accounts over the life expectancy of the deceased account owner’s children and grandchildren.  The financial value of that life expectancy “stretch-out” was very significant, as it could allow tax-deferred growth for many, many years over the life expectancy of the beneficiaries.  For instance, a payout period available under the prior law could be as long as 81.6 years for a 1-year-old beneficiary, or 43.6 years for a 40-year-old beneficiary.

Those days of careful planning to obtain the maximum life expectancy stretch-out are now over for the beneficiaries of a tax-deferred retirement accounts. Now, after the enactment of the SECURE ACT, there is a ten-year payout rule that applies for a tax deferred retirement account in nearly all cases where the account is to be passed to future generations.

Given this very recent and important change in estate and retirement planning, it is extremely important to address (or re-address) your estate plan to ensure it remains properly structured and that your wishes will still be carried through after you pass.

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Please contact the Estate Planning attorneys at Bruning & Associates, P.C. at 815-455-3000 to schedule your complimentary consultation to further discuss your personal estate plan.

Click here to read more by Attorney Jonathan M. Thornton.