Estate Planning for Retirement Funds in Light of the Secure Act

After working for most of their adult life, many people look forward to the day they can retire. However, financial advisors recommend working adults start saving as soon as possible in order to have a comfortable retirement. Setting Every Community Up for Retirement Enhancement Act, typically referred to as the SECURE Act, affects defined contribution plans, such as 401(k)s, defined benefit pensions, individual retirement accounts (IRAs) and 529 college savings accounts. Although most of the changes based on the new law took effect January 1, 2020, some will not be in place until 2021. It is important to understand how the SECURE Act may affect your retirement savings plans for the future, such as new rules related to the payout of retirement accounts to a deceased participant’s beneficiaries. An experienced estate planning attorney can assist you with drafting your estate plan as it relates to retirement, regardless of your age. 

Beneficiaries of Retirement Accounts

According to the previous legislation, most designated beneficiaries of an inherited retirement plan, such as Individual Retirement Accounts (IRAs), were allowed to take distributions from the account over the beneficiary’s lifetime. By allowing the beneficiary to “stretch” withdrawals out indefinitely, the beneficiary could continue to earn investment returns on a tax-deferred basis. 

Now, the SECURE Act eliminates the ability to “stretch” these withdrawals from inherited retirement accounts over a beneficiary’s lifetime. Instead, the account must be distributed in full within 10 years after the plan participant passes away. However, the SECURE Act limits the lifetime stretch rules to five categories of beneficiaries: 

  1. The participant’s surviving spouse
  2. Any minor children of the participant
  3. Disabled beneficiaries
  4. Chronically ill persons
  5. Any beneficiaries who are less than 10 years younger than the plan’s participant

If you have a retirement account or are just starting to contribute to one, it is important to review your current beneficiary designations and estate planning documents, especially trusts with retirement plan beneficiaries. A skilled estate planning attorney can explain and implement strategies to mitigate the impact of the SECURE Act and any tax implications.

A few of the implications of the SECURE Act are especially timely now as COVID-19 continues to pose a significant health threat. One’s own mortality can be difficult to consider, and an uncomfortable discussion with loved ones, but doing so is all the more important during this unprecedented time in our nation’s history.

Contact a McHenry County Estate Planning Attorney 

More and more people are thinking about their wishes should something happen to them, given the global pandemic we are living through now. If you or someone you know is concerned about what will happen to your assets after you are gone or if you are unable to make decisions, the trusted legal team at Prime Law Group, LLC can help. Our knowledgeable Woodstock estate planning lawyers are prepared to create an estate plan that is customized to meet your family’s needs. Call our office today at 815-338-2040 to arrange a private consultation.

Date: December 10, 2020


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