Does the SECURE Act Upend Your IRA Plans? It Probably Does.

Buried in December's congressional budget, the SECURE Act* made significant changes to IRAs. Some may be helpful, but others may lead you to consult your professional advisors and make some changes to your plans. For people wanting to pass on substantial IRAs to junior family members, the news is almost completely bad.
A few of the SECURE Act’s key points:
  • It raised the age for your "Required Minimum Distributions", (RMDs), from 70 ½ to 72. This gives your account another 18 months of growth, and can increase your RMD in future years. 
  • You can still make a “Qualified Charitable Distribution” (QCD) at age 70½ from your IRA. By sending it directly from your IRA to charity, it generally won’t count as taxable income. If you are between 70½ and 72, it can be a tax-smart way to give. 
  • With few exceptions, non-spousal inheritors of your IRA will not be able to “stretch” distributions out over their lives. Instead, they must to take it all within 10 years. This means less opportunity for the IRA to grow, a much bigger, and accelerated income tax bill, and real damage to the after-tax wealth of IRA inheritors. 
  • If your IRA beneficiary is a trust, you will want to discuss with your advisors. Some IRA trusts, unless modified, may only permit a five-year payout, instead of the new law’s 10-year payout. 
  • Strategic allocation of IRA assets has not been altered by the SECURE Act.
Consider Dorothy. An 88 year old widow, she and her late husband’s careful savings created a large IRA. She named her daughter, 60, and two grandchildren, in their 40s, as beneficiaries. Her goal was to create a generous inheritance for each. Her estate plan also leaves her house, worth about the same as her IRA, to the Community Foundations to support her favorite causes. Dorothy could consider reallocating the IRA to the Community Foundations and the house to her daughter and grandchildren.
Dorothy could also consider designating the IRA to pass to a charitable trust or gift annuity. These can provide a life income to her family, “stretching” it (and the tax bills) over their lives. The charitable remainder would then create the legacy Dorothy envisioned.
Did the SECURE act add to your 2020 “to do” list? Consult your attorney, accountant, and/or financial advisor to determine if your plans still create the legacy you intend.
* SECURE stands for Setting Every Community Up for Retirement Enhancement Act
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