The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law back in December 2019. The SECURE Act is not a complete overhaul of the American retirement system. However, the act made several significant changes to the system, which impacts retirement and estate plans. Estate planning attorneys should be aware of these changes when advising clients how to manage their assets and to ensure that client objectives are met.

The act’s most notable impact is the closing of the “stretch” IRA loophole. Stretch IRA refers to the concept of deferring commencement of required minimum distributions (RMDs) from retirement accounts well beyond the death of the initial account holder. Prior to the act, any designated beneficiary of an IRA could defer RMDs on the IRA for the beneficiary’s lifetime. The old RMD rules typically required individuals to begin receiving payments from an IRA at age 70 ½ so that assets held in retirement accounts can begin to be taxed. When an IRA is “stretched” the IRS retirement assets remain untaxed for an extended period. In the case of a beneficiary who was much younger than the initial account holder, RMDs could be deferred for decades. The SECURE Act curtails stretching by requiring most IRAs to be distributed in full within 10 years of the account holder’s date of death. The rule applies to traditional IRAs, 401(k) plans and other defined contribution plans. However, ROTH IRA’s remain exempt from RMDs under the act.

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