Ways to Revise Your IRA After the Secure Act

In December 2019, the SECURE Act was signed into legislation. This regulation is one of the most substantial changes to have occurred in the last few years. As a result of the SECURE Act, IRAs and required monthly distributions can end up having a substantial impact on your estate plans. It is critical to understand how you might consider revising your estate plan to reflect these changes. 

Know What the SECURE Act Does

Before you make any changes to your estate plan in light of the SECURE Act, you should appreciate what changes result from this new law. The SECURE Act has two substantial benefits for people interested in retirement planning at the price of increased obstacles for heirs. These changes include:

• There is no longer an age limit for IRA contributions. This means that people can continue to save for retirement past the age of 70. 
• Required minimum distributions now begin at the age of 72 rather than 70.5. This change gives accounts additional time to mature, which means that savings will be as large as possible. 
• With the exception of spouses, “stretch” IRAs which allow beneficiaries to stretch out IRA distributions over their lifetime are removed. Now non-spouse beneficiaries must receive the entirety of an account within 10 years of the IRA holder’s death. 

Convert Traditional IRAs to Roth IRAs

When a person converts a traditional IRA to a Roth IRA, assets are “rolled” between the two accounts. By doing this, a person pays taxes on any assets withdrawn but the remaining assets grow tax-free after the conversion. Following the SECURE act, the changes to required minimum distributions will lead to larger accounts, which will, in turn, result in increased tax liability. 

Also, because under the SECURE Act, Roth IRAs must be distributed within 10 years, the distribution will be made during this time but will not be subject to tax consequences. If converting your traditional IRA seems like a good idea, you should still consider both your current tax bracket as well as your beneficiary’s tax bracket. If your beneficiary will be in a higher tax bracket in later years, it might be a good idea to perform a conversion now and pay the tax at its lower rate.

Is Naming Your Spouse as a Beneficiary a Good Idea?

After the SECURE Act, naming a spouse as the primary beneficiary of an IRA will let that account continue growing tax-free without being subject to the 10-year requirement. To additionally reduce the impact of taxes on heirs, a surviving spouse could use required minimum distributions to make gifts to those heirs. 

Speak With an Experienced Estate Planning Attorney

Each year, various estate planning changes occur that substantially impact people’s estates. Speak with a knowledgeable estate planning attorney to determine if there are any changes that must be made to your estate plan today. Contact attorney Jim A Lyon for assistance.