The SECURE (Setting Every Community Up for Retirement Enhancement) Act is a bill currently making its way through Congress. If the Act is signed into law, it will change the rules that govern Required Minimum Distributions (RMDs) made from retirement accounts after the account owner’s death.
The House of Representatives recently passed the SECURE Act with a near-unanimous bipartisan vote. The Trump administration has not taken a position on the bill. However, if the Act passes in the Senate, lobbyists who support it say they expect the president to sign it into law. Passage of the Act is currently being blocked in the Senate by Senator Ted Cruz who wants to add a provision to the bill allowing 529 college savings accounts to be used toward expenses for homeschooling.
Currently, non-spouse beneficiaries of inherited retirement accounts can stretch RMDs over their lifetimes. These distributions from inherited retirement accounts are taxable, so the longer that beneficiaries can postpone or defer them, the better.
If the SECURE Act is signed into law, non-spouse beneficiaries of retirement plans will have to withdraw the balance of the retirement account within 10 years of your death. The proportion of the retirement account distributed to the beneficiary each year within this period can vary. Exceptions have been proposed for minor and disabled children. However, once a minor child who inherits a retirement account attains the age of majority, the child would have to withdraw the balance of the account within 10 years. The Act would also impact trusts that are named as beneficiaries of retirement accounts after the owner’s death and affect distribution of retirement assets. If enacted, these new rules will begin applying to inherited IRAs in 2020 and non-IRA retirement plans in 2022.
Some strategies to keep in mind and learn more about if the act is passed are conversions of traditional IRAs to Roth IRAs, using retirement plans for charitable giving by way of qualified charitable contributions made directly from retirement plans and charitable remainder trusts funded with retirement plans and replacing the lost value of tax deferral with life insurance.
Stay tuned for more information about the SECURE Act and its impact as well as planning strategies that may mitigate the impact of this legislation if and when the Act is passed.