On January 20th, 2020, the SECURE Act went into effect. This piece of legislation made extensive changes to the way retirement plans are disbursed after the account holder passes away. Understanding how these adjustments may affect your estate plan can have a significant impact on the loved ones you leave behind.

Changes in the SECURE Act

The SECURE Act introduced a variety of new rules regarding the distribution requirements of some tax-deferred savings accounts, such as 401(k)s and IRAs. Under previous rules, account holders had to begin taking funds out of their accounts after they turned 70½. The SECURE Act extends this deadline until you turn 72, giving you another year and a half to begin taking mandatory minimum distributions.

Previously, certain beneficiaries could take minimum distributions based on their age at the time of inheritance, potentially spreading the tax burden over decades. Unfortunately, the law also did away with special rules regarding inherited investment accounts that represented significant tax savings for beneficiaries.

Distribution Rules in the SECURE Act

Under the new rules, most beneficiaries must withdraw all the funds from a contribution plan within 10 years. This accelerated timetable means the beneficiary will have to pay taxes on those sums sooner, while rapidly dwindling balances in the account limit growth.

There are, however, some exceptions. Certain eligible designated beneficiaries, such as a spouse, minor child, or disabled individual, may be able to make withdrawals over a longer period. If the beneficiary you name falls into one of these categories, you may not need to make changes to your estate plan.

Whose Estate Plans Are Affected?

If the individual inheriting your retirement accounts doesn’t qualify as an eligible designated beneficiary under the new guidelines, you may want to consider revisiting your estate plan. Leaving those funds to someone who can make withdrawals over decades ensures that your family members get the most out of the wealth you’ve built.

Estate plans that employ a conduit or accumulation trust to pass funds to a beneficiary will also be affected. Previously, these trusts were used to administer retirement accounts to an heir, who was treated as a beneficiary by the IRS. Those trusts will no longer work as they were originally designed, so you may want to ask your attorney about other options.

With roots stretching back to 1959, Pepping, Balk, Kincaid & Olson, Ltd., has provided detailed estate planning advice to generations of families throughout the greater Quad Cities area. Their team offers a comprehensive range of services and the expertise to provide solutions based on the most recent changes to the law. Visit their website for more on their estate planning services, get more tips on Facebook, or call (309) 755-5096 to schedule a consultation today.