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How Secure is your Retirement Account?
By Bernard A. Krooks, Certified Elder Law Attorney
Late December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act became law, making the most significant changes to the tax rules governing retirement accounts in recent memory. The SECURE Act, whose effective date was January 1, 2020, was hanging around in Congress in one form or another for about five years until it finally got enacted into law.
The most important change made by the SECURE Act was the elimination of the “stretch” option for most individual retirement accounts. While there have been significant changes to the estate tax over the last several years, those changes likely won’t affect most Americans since less than 1 percent of us have estates large enough to be subject to the federal estate tax. Conversely, most people have money in retirement accounts and over the next two to three decades there will be the largest inter-generational transfer of wealth in history, with much of the money being transferred being held in retirement accounts. Here are some of the major changes contained in the SECURE Act:
1. Individuals don’t have to start taking required minimum distributions from their retirement accounts until age 72. Previously, distributions had to commence at age 70 and ½. This is good news since people are generally living longer and working longer. This change will allow more money to accumulate in retirement accounts before withdrawals have to be made. The Internal Revenue Service also is expected to issue revised life expectancy tables which are used to determine how much is required to be withdrawn each year.
2. IRA contributions may now be made for those still working regardless of age. Previously, 701/2 was the age limit for those still working.
3. Previously, if you inherited an IRA from someone, you were able to take those benefits over your life expectancy if proper planning was done. This allowed IRAs to grow in amount tax-free without having to be depleted by larger mandatory withdrawals since the beneficiary was typically younger than the original IRA owner. Under the SECURE Act, the entire account must be distributed within ten years of the account owner’s death, unless certain exceptions apply. The purported rationale for this change, was that the IRA rules were originally intended to provide for the owner’s retirement and not intended to be a wealth creation vehicle for the beneficiaries.
Now for some good news. Certain beneficiaries are not subject to the new 10-year rule, including surviving spouses, minor children (but not grandchildren), individuals with disabilities or those who are chronically ill, and individuals who are not more than 10 years younger than the IRA owner. If you qualify under these rules, you can still use the life expectancy tables and stretch out the retirement benefits.
Please note that the above discussion is just a brief summary of some of the more salient provisions of the SECURE Act. If you own retirement accounts and had your estate plan done prior to 2020, it is possible that the plan needs to be reviewed and certain changes made, especially if you had created a trust to receive some or all of your retirement accounts on your death.
Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven years. He is past President of the National Academy of Elder Law Attorneys (NAELA) and past President of the New York Chapter of NAELA. Mr. Krooks has also served as chair of the Elder Law Section of the New York State Bar Association. He has been selected as a “New York Super Lawyer” since 2006. Mr. Krooks may be reached at (914-684-2100) or by visiting the firm’s website at www.elderlawnewyork.com.