As a country of hard-working men and women, America is a place where individuals have multiple opportunities to ensure the safety of their well-earned money. We pinch our pennies, store our bills in the bank, and save cash in trusts and retirement plans. We are careful to save money away for ourselves in the case of an emergency, or for our children and grandchildren when we die.
It is comforting to us to know that our money is being protected, and we are likewise – by saving it. However, as our country continues to progress and change, so do the laws governing our retirement plans.
What is the SECURE Act?
On December 20, 2019, the SECURE Act was signed into law instituting new laws regarding IRA’s, Trusts, and Retirement Plans.
Standing for “Setting Every Community Up for Retirement Enhancement Act”, the SECURE Act was intended to change various rules regarding Required Minimum Distributions (RMD) and Beneficiary Distributions.
Changes in RMD
One notable change the SECURE Act has caused for IRA distribution rules is that the age in which you must start to make distributions from your retirement account has been increased to 72 years old. This may be considered as a positive change as you can now wait until you are 72 to withdraw from your account.
Many people use their IRA as a way of storing tax-free money. But once you start to distribute or withdraw from the account, the money you remove can be taxed. Because the age has been extended, you will have more time to save up tax-free money.
Changes in Beneficiary Distributions
One of the biggest drawbacks of the SECURE Act is that beneficiaries generally only have 10 years after the death of the IRA owner to receive all the money saved. This can cause a multitude of problems. However, the biggest problem with this rule is the acceleration of taxes beneficiaries will have to pay on the account money.
IRA’s are typically used for emergency retirement funds as well as a vehicle for leaving beneficiaries’ money in your estate. Previously, beneficiaries were allowed to choose to spread their IRA distributions out throughout their lifetime, thus minimizing the amount of taxes they had to pay on the money. Now, with only a ten-year window, beneficiaries will be forced to pay more taxes on their inheritance than they ever had before.
Piercey & Associates, Ltd. has worked to develop solutions that allow the inherited retirement account to be stretched up to the full life expectancy of a beneficiary, rather than a shorter 10 year period, which has the effect of substantially reducing taxes. If you are concerned about how the new SECURE Act will impact your own retirement plans, do not hesitate to contact us below or call us at (224) 848-4646.