On December 20, 2019, the President signed the Setting Every Community Up for Retirement Enhancement Act of 2019, frequently called the “SECURE Act.” The SECURE Act will change how IRAs and certain retirement benefits must be treated post-death beginning on January 1, 2020.
The Act raises the age for required minimum distributions from 70 ½ to 72 years old. However, many designated beneficiaries who inherit an IRA will now have to withdraw the funds and pay the resulting income tax within 10 years of the account owner’s death rather than stretching this period out over their own lifetime. There is an exception for spouses, who can still do a spousal rollover to utilize a life expectancy payout. Beneficiaries that are disabled, chronically ill, or less than 10 years younger than the deceased account owner who will also be able to utilize a life expectancy payout. If a minor child of the account owner is a designated beneficiary, he or she will have 10 years from the date they legally become an adult to withdraw the funds. However, this rule does not apply to grandchildren or other minors.
This is a significant change to the law which may require a reconsideration of your existing beneficiary designation and/or changes to your existing estate planning documents. Without proper planning, this acceleration of mandatory withdrawals could result in young beneficiaries receiving large distributions in their 20s that would otherwise have been distributed slowly across their lifetime.