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Death of the Stretch IRA…Increased RMD age…And, broader 529 usage. Oh my! Find out how the new SECURE Act may affect your IRAs and 529s, and if it means your estate plan needs an update.

Jimmy Zimmerman
January 9, 2020

Non-Spouse Beneficiaries

The Act does away with the ability to “stretch” required minimum distributions (“RMDs”) over their lifetime. This is not retroactive, so it will not affect beneficiary IRAs already in existence, only those created on or after 1/1/2020. This means that starting this year, beneficiaries who inherit IRA monies will now be required to fully distribute those accounts within 10 years.

However, the Act does provide a carve-out for certain types of beneficiaries, still allowing for a “stretch” over their lifetime. This includes beneficiaries that fall into one of the following categories:

a surviving spouse
disabled individuals
chronically ill individuals
individuals who are not more than ten years younger than the deceased owner
the owner’s minor children (until they reach the age of majority)

What does this mean? You should reexamine whether your beneficiary designations and estate plan still accomplish your goals as changes may be necessary.

Positive Changes for IRA Owners

While many beneficiaries of retirement accounts will not be as well off, the actual owners will see positive changes.

RMD Age Raised from 70 ½ to 72

The age at which an individual must begin taking required minimum distributions from their account has been raised from 70 ½ to age 72. This only applies to individuals who will not have turned 70 ½ prior to 1/1/2020. For all those who have already reached that age, you must continue to take RMDs.

Repeal of Age-Based Limitations on IRA Contributions

Individuals can now continue making contributions to their IRA beyond the age of 70 ½.

Both of these provisions address the fact that individuals are simply living longer than they have in the past.

Positive Changes for 529 Owners & Beneficiaries

The bill expands what qualifies as an allowed distribution from a 529 plan. 529 plans can now be used to pay for registered apprenticeships and up to $10,000 of qualified student loan repayments. Just make sure that the distribution is also okay with your state because not all states follow the federal guidelines, and an improper distribution could create unplanned early withdrawal penalties.

This is not a complete overview of all the changes in the SECURE Act. There are changes we haven’t covered here; we also won’t know the ramification of some these changes for some time. We will continue to review and analyze these changes and look forward to discussing with our clients in the days and weeks ahead.

If you aren’t a client and want to discuss how these changes may affect you, please reach out to us and let us know if we can help.

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