The SECURE ACT Brings Major Changes to the Taxation of Retirement Plans
New federal legislation recently passed dramatically alters the way distributions will be made under Individual Retirement Accounts (IRAs) and other qualified retirement plans. Known as “The SECURE Act”, the stated goal is to improve the nation’s retirement system. Under former law, named beneficiaries were able to stretch payments from IRAs and other qualified retirement plans over the life expectancy of the beneficiary. The SECURE Act has effectively eliminated the ability to stretch distributions over a beneficiary’s life expectancy with the exception of only a select group of beneficiaries, including an individual’s spouse and a limited group of non-spouse beneficiaries, such as minors or disabled or chronically ill children. In almost all other cases in which a non-spouse beneficiary is named, the maximum period for payments to a designated beneficiary is limited to ten (10) years. This means that the beneficiary must distribute the entirety of the retirement plan within the ten year period. With respect to minor beneficiaries, in most cases, such beneficiary’s ten year period begins when the minor beneficiary reaches the age of majority.
Additionally, the SECURE Act changes age-related limitations respecting retirement accounts including the required beginning date for minimum required distributions which has changed from age 70 ½ to age 72.
All individuals who have named a trust as the beneficiary of a retirement plan should meet with his or her legal counsel to review the trust terms and determine what, if any, document revisions are needed to address this new legislation. Additionally, individuals relying on an extended distribution period from retirement plans to beneficiaries after death as a part of an estate plan may want to consider alternatives.