The Secure Act was originally written to make changes to retirement laws. The act passed through the House last May and was held by the Senate until November when it was added to the Appropriations Bill and signed into law in December.
The law change catching attention is the starting age for required minimum distributions (RMDs). If you are retired and reached 70 1/2 before the end of 2019 you are required to take distributions. Everyone else can wait until the year they reach age 72. The annual RMD amount continues to be based on life expectancy tables published by the IRS.
The other change attracting attention relates to distribution rules for inherited retirement accounts. These accounts, including IRAs, 401(k)s and other similar qualified accounts, generally have named beneficiaries. When there is just one beneficiary and it is the spouse, then the withdrawal rules are the same as if the account originally belonged to the spouse. The SECURE Act did not change this.
However, when the account beneficiary is not the spouse, the rules for taking distributions have changed. In general, the beneficiary must take distributions on a schedule that will liquidate the account within ten years. Stretch IRAs, which set up for distributions over the beneficiary’s life expectancy, are no longer an option. Beneficiaries will want to plan for the tax implications of those distributions.
Exceptions to the ten year distribution schedule include: disabled beneficiary, chronically ill beneficiary, beneficiaries not more than ten years younger than the deceased, and children that have not reached the age of majority. Separate rules apply to these individuals, and also to situations where multiple beneficiaries are named, so professional guidance is recommended.
More about the Secure Act will follow in subsequent posts……