SECURE Act may change estate planning for IRAs, 401(k)s

The estate plans of some South Carolina residents may be affected by a rule that has passed the U.S. House of Representatives and which is likely the pass the Senate unanimously. The Setting Every Community Up for Retirement Enhancement Act will require most beneficiaries to withdraw the entire amount of an IRA within 10 years of the owner’s death. The previous rule offered significant tax savings to beneficiaries by allowing them to take distributions over a much longer period of time.

There are a few exceptions that will fall outside of the 10-year rule. This includes spouses, chronically ill or disabled beneficiaries, and beneficiaries whose age is within 10 years of the owner. Minor children are also exempt until they reach the age of 18, at which point the 10-year rule also kicks in.

The 10-year rule will also apply to many other different plans, including 401(k)s and profit-sharing plans. Individuals who have created an IRA trust as part of their estate plan may need to review that decision and assess whether it is still the best one. This may be the case for a beneficiary with special needs, but there might be better solutions in other circumstances. Some types of charitable remainder trusts may be established to allow distributions to stretch for more than 10 years to beneficiaries.

The issues raised by the passage of the SECURE Act are complex ones and will affect individual estate plans in different ways. However, even people who do not believe they are directly affected by this change should still review their estate planning regularly to make sure it is still current based on assets, changes in the law and their family situation. For example, a family conflict or the birth or death of a family member could require a revision of the plan.