Did you know that Congress recently passed one of the most important retirement reforms in a generation? The Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act, was passed last year and signed into law on December 20, 2019. The stated goal is to help people accumulate assets for retirement. As such, significant changes were made to “tax-advantaged” accounts like 401(k)s, Individual Retirement Accounts (IRAs) and more. If you have a tax-advantaged account, or if you are concerned about outliving your current retirement assets, then now is the time to consider updating your Florida estate plan with your attorney.
The SECURE Act changes many longstanding provisions, but among the most significant are an increase in the age of required minimum distributions (RMD) from 70½ to 72, and the elimination of age restrictions to make contributions to qualified tax-advantaged accounts. Both reforms allow for an account holder’s assets to grow larger.
The SECURE Act also requires, however, most designated beneficiaries to withdraw the entire balance of an inherited account within 10 years of the account owner’s death. This is a major change that could be disastrous for your loved ones if not properly planned for. Prior to the Act, beneficiaries could “stretch” inherited distributions over a much longer period of time. Now, less money may grow tax deferred and more taxable money is likely to go to your beneficiaries. Yearly RMDs are also greater than before, thus compounding the tax burden your beneficiaries could incur as a result of the shorter 10-year withdrawal term.
Let us share another issue with you. While spouses, disabled individuals, beneficiaries 10 years or less younger than the account owner, and children are all exempt from the new withdrawal rule, once a child reaches the “age of majority”, which is 18 years old in most states, then the withdrawal rule kicks in. That means young adult beneficiaries could receive the proceeds of a deceased relative’s retirement savings account in a relatively short amount of time. Rather than use the inheritance to build long-term wealth and security, young adults may be vulnerable to financially immature decisions and exploitation. Luckily, it does not have to be this way when you create your Florida estate plan with an experienced estate planning attorney.
We know this blog may raise more questions than it answers. The SECURE Act may feel confusing at first, therefore, we encourage you to contact our law practice to discuss your Florida estate plan. Whether you are updating your existing plan, or creating one for the first time, we look forward to meeting with you.