Final legislation enacted December 20, 2019 included the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which consists the most updates to retirement legislation in over a decade.  Many of the provisions aim to encourage more Americans to improve their retirement savings.  And while many of the changes offer opportunities, there are also potential situations that may require a review of estate-planning strategies to avoid unexpected taxes to heirs.

The most potentially negative item included in the Act is the elimination of a planning strategy known as the “stretch” IRA.  Excluding a surviving spouse, a chronically ill or disabled individual, or a minor child, any other beneficiaries of IRA assets who are more than 10 years younger than the IRA owner must completely liquidate all assets from an inherited IRA.  This change will cause IRA owners to reevaluate beneficiary choices that may have been selected in establishing an estate plan.  Also, there could be some tax planning implemented to convert traditional IRAs to Roth IRAs, which can be inherited income tax free.

Other benefits to individuals and employers include:

  • Working individuals can contribute to traditional IRAs beyond age 70 ½
  • RMDs can begin later, when a retiree turns 72
  • Increase in tax credit for small employer plans with auto enrollment
  • Allowing penalty free withdrawals for birth or adoption costs
  • Opportunities for part time workers to participate in defined benefit plans
  • Extended use of 529 Plan funds, including to repay student loans

If they had not already received, employees can expect to begin receiving annual statements summarizing the retirement assets.  Employers will report estimates of the value of employee’s retirement plan assets as well as an estimate of the amount of monthly retirement income expected.  This will help employees evaluate how close they are to retirement goals.

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As many of these changes will affect participants in retirement plans, as well as subsequent beneficiaries, investors should review the impact on their estate plans with their advisor. If you would like to discuss options to move forward if this change impacts you, reach out here or call us at 513-241-8313 to set up a meeting.