How The SECURE Act Can Affect Estate Planning
Estate planning is imperative to protect your loved ones and ensure your wishes are carried out just how you would like. However, it can be a complex process to navigate. Furthermore, there have been recent changes made to the landscape of retirement and estate planning such as the SECURE Act.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019, and became effective on January 1, 2020. The SECURE Act can seem confusing at first, and many people have questions about what it is and how it works. To calm your concerns and answer questions you may have about the SECURE Act and estate planning, read on to find out more.
This article explains what the SECURE Act is, how it works, and how it can affect estate planning. For further information or personalized advice in Portland, West Linn, or Bend, OR, contact J Mishkin Law today.
What Is The SECURE Act?
The SECURE Act is an act signed in by former President Donald Trump that aims to increase access to tax-advantaged accounts and simplify the process for small businesses to extend benefits and retirement plans to their employees. It also aims to help older people in America from outliving their assets. It has made several changes in regards to retirement planning such as who is eligible to contribute to retirement accounts and changes to withdrawal requirements.
What Does The SECURE Act Do?
There are 29 provisions in the SECURE Act. Key takeaways include:
- Changing the retirement age from 70 ½ to 72
- Removing the age limits for IRA contributions
- Delaying the age you need to start taking Required Minimum Distributions (RMDs)
- Implementing the “10-Year Distribution Rule”, where non-spousal IRA beneficiaries will need to distribute an entire account within 10 years of inheriting it
- Allowing new parents to access penalty-free withdrawals
- Allowing long-term part-time employees and gig employees such as Uber drivers to possibly be eligible for 401(k) plans
How Can The SECURE Act Affect Estate Planning?
The SECURE Act has made changes to retirement regarding RMDs, IRA contributions, and 402(k) accounts. These can greatly affect your estate planning.
- RMDs: While previously you had to take your first distribution when you were 70 ½, you now don’t need to take your first distribution until you’re 72 years of age.
- IRA contributions: The SECURE Act has given you an increased opportunity to save by allowing you to contribute past the age of 70 ½.
- 401(k) accounts: Previously your employer could contribute 3%, whereas now they can contribute 4%. There is also now the inclusion of “lifetime income investments”, meaning that if you change jobs, whether you’re a full-time or part-time employee, you can roll over your lifetime income investment to a new IRS or 401(k) plan provided that you’ve worked a minimum of 500 hours over the past three years.
The SECURE Act has also made changes to rules for beneficiaries. Overall, its main effect on estate planning is that children and grandchildren can no longer take stretched-out distributions over their lifetime.
If your retirement plan is left to your children, it’s crucial that you consider the implications the shorter distribution scheme the SECURE Act has brought in could have on your child’s income taxes. As there may be additional tax burdens to bear, you can take steps during your lifetime to avoid such consequences.
Concerned About The SECURE Act’s Effect On Your Estate Planning?
If much of your estate is held in retirement accounts, and your retirement plan centers around allowing your beneficiaries to take distributions over a long-term payout scheme, your strategy may no longer be the best option for you. Mr Mishkin is an experienced estate planning attorney, tax attorney, and business law attorney who aims to help you in any estate planning matters you may have. With over 20 years of experience, he can work with you to structure your affairs in the way that works best for you. To find out more or to book an appointment, contact our team at J Mishkin Law today.