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Here’s How the SECURE Act of 2019 Could Have A Significant Impact On Your Retirement Account Savings

By March 1, 2020October 4th, 2021No Comments

So, you’ve spent a lifetime saving money in a retirement account for the golden years of your retirement with the idea that the remaining money in the account would make a nice inheritance some day for your loved ones. Well, now you may need a Plan B.

Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act that went into effect on January 1, 2020, the government is giving your heirs 10 years to take the money out of the Traditional  Individual Retirement Account (IRA), 401k, 403b, Simplified Employee Pension (SEP) IRA and other tax-deferred retirement accounts you may be planning to pass on to them. The money they withdraw will be added to their taxable income that is usually taxed at the highest tax rates. For a person in their peak earning years paying federal and state taxes, upwards of 50 percent of the money could be paid to the Internal Revenue Service (IRS). Instead of your heirs being able to stretch out the withdrawals and the taxes on a sizeable tax-deferred account over their lifetime, they now have only ten years. The new law does not apply to spouses named as a beneficiary of a tax-deferred retirement account.

Roth Individual Retirement Accounts (Roth IRA) are exempt from the 10-year rule because the account is funded with money after the income tax has been paid. However, people inheriting a Roth IRA will have to begin withdrawing Required Minimum Distributions (RMDs) no later than December 31 of the year when original owner of the account would have turned 70 ½ years old. And those distributions are taxable.

The good news is that there are several ways for you to bypass these restrictions. One way is if you are planning to bless your church and favorite charities though your will, you could make them the beneficiary of your retirement account and leave cash, property and assets that will not be as heavily taxed to your heirs. Your church and qualified charities, like Stonecroft, are tax-exempt and will receive the full benefit of your gift. You can also leave retirement account assets to a Donor Advised Fund. This means the money can be directed to charitable causes by your heirs thus perpetuating your family’s legacy of generosity.

The SECURE Act also increases the age to begin withdrawing Required Minimum Distributions (RMDs) from age 70 ½ to 72. If you turned 70 ½ in 2019 or earlier, you are still required to make annual RMD withdrawals from your account.

Stonecroft recommends you consult your tax-advisor or financial planner prior to making any decisions. If you would like assistance with estate planning we have resources that can help you and your attorney.

For your own complimentary Estate Planning Guide contact Whitney Putnam by emailing [email protected].