Congress recently passed the SECURE Act, a legislative overhaul that impacts virtually anyone who has saved or is saving for retirement in IRAs and 401(k)s. The acronym, “SECURE,” stands for Setting Every Community Up for Retirement Enhancement.”
“Secure” is a word often used when we think about our finances. We all want a comfortable and “secure” future. I am sure that was a motivating factor when faced with the challenge of coming up with a name for an Act that both give–eths and take–eths away from the financial planning diligent individuals have used to provide for their “comfortable and secure” future.
The word “Secure” has its roots from the Latin word “securus.” From “se” (without) plus “cura” (care). Together, se cura, without care, free from care. Webster defines the word secure as being free from danger or affording safety. So, in essence, is the “SECURE Act” designed to provide us freedom from danger or to provide us a care–free passport to a comfortable and secure future? In my opinion, Setting Every Community Up for Retirement Enhancement is a noble idea. But, it is hard to reform existing legislation in such a way that there is equal benefit in the new legislation for all individuals in various income and wealth brackets. That is why it is important for everyone who is saving for retirement or who has retirement assets to see how this legislation impacts them individually.
The SECURE Act has by its very passage created some issues we should all care about, especially those of us who have been planning diligently for our financial livelihood, whether currently working or in retirement.
In my most recent blog post, I mentioned that one action item to put on our agenda for the beginning of the year is to review all of your beneficiary designations on all of your assets to include bank accounts, IRAs, 401(k) plans, etc. For anyone who has any trusts created for their estate plan, there may be a need to amend or restate the estate plan because of certain facets of the SECURE Act. One facet being the removal of the s–t–r–e–t–c–h IRA provision that went away effectively on December 31, 2019.
The Stretch IRA “was” a great tool to use for anyone who is not a spouse who inherits an IRA. Basically, a non–spouse beneficiary can s–t–r–e–t–c–h required distributions from the inherited IRA over their life expectancy. Now, a non–spouse beneficiary (to include children, grandchildren, significant others) must liquidate the inherited IRA over a ten–year period–of time. This can and no doubt will cause unintended consequences of inheriting a largesse that should be a financial benefit, not a financial burden.
Complying with facets of this new rule may be a boon for estate planning attorneys who will need to come up with new verbiage for Trusts that are named as beneficiaries on IRA and 401(k) assets. Any trust verbiage with regard to beneficiaries receiving funds from IRAs should be reviewed with your legal professional to be sure it complies with the new SECURE Act. Another expense for conscientious individuals who did proper estate planning before the SECURE Act became law, but an expense worth paying to be sure your legacy is received in a way that does not cause adverse tax consequences to your beneficiaries.
For individuals in retirement or nearing retirement this new legislation is definitely something to pay attention to. We will be delving more into the SECURE Act in the coming weeks and months so that we can learn best practices to help our clients, indeed, plan for their comfortable and secure, without care, future.