How the SECURE Act could affect estate plans

On Behalf of | Jan 28, 2020 | Trusts

Many people in Nevada include their retirement accounts as part of their overall estate plan. In the past, people often planned that the named beneficiary on their individual retirement account, or IRA, could take the distributions from the plan over their entire lifetime. However, with the passage of the SECURE Act, inherited IRAs will be handled differently moving forward. With some exceptions for minor children, spouses and beneficiaries with chronic illnesses or disabilities, the full distribution of an IRA must be taken within 10 years of the death of the primary account owner.

Of course, many people leave their retirement accounts to their spouses or to another loved one with less than a 10-year age difference, who is exempt from the change. For those who do not, however, they may want to think through their estate plan in order to consider the tax effects of the change. People who had named a revocable trust as the beneficiary of their IRA may want to move to a retirement trust. The assets will still need to be removed from the IRA within 10 years, but here, a trustee manages them for the benefit of a beneficiary with the intention that they be used for the beneficiary’s retirement.

Others may want to think about converting their traditional IRA to a Roth IRA. Rather than paying taxes when distributions are taken, Roth IRA distributions are tax-free because taxes were paid in advance. Roth IRAs are still subject to the 10-year rule under the SECURE Act, but they will not have a negative tax consequence for the beneficiary.

Some people may be unsure whether the SECURE Act will affect their plans for the beneficiaries of their retirement accounts. An estate planning attorney may provide advice on how to handle retirement funds as part of an overall plan.