The SECURE Act: How Are Your Retirement Accounts Affected?

This post is from Tom Culpepper, an estate planning attorney in Montgomery County, Ohio.

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which became effective on January 1, 2020. The Act is the most impactful legislation affecting retirement accounts in decades. It will have a positive impact for many older Americans but could have negative tax consequences for many beneficiaries of their retirement accounts.

The Good and the Bad

The SECURE Act makes several positive changes: It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts.

However, perhaps the most significant change will affect the beneficiaries of your retirement accounts: The SECURE Act requires most designated beneficiaries—with some exceptions for spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals—to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.[1]

Under the old law, “designated beneficiaries” of inherited retirement accounts (i.e. beneficiaries who are individuals) could take distributions over their individual life expectancy. Under the SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly causing your beneficiaries to be bumped into a higher income tax bracket and receive less than you anticipated.

Next Steps

In order to protect your hard-earned retirement account and the ones you love, it is critical to act now. In addition to the tax considerations stemming from the SECURE Act, you might be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and a divorcing spouse. An estate planning attorney can help you think through the following potential strategies to help you achieve your estate planning goals:

Review/Amend Your Revocable Living Trust (RLT) or Standalone Retirement Trust (SRT)

Depending on the value of your retirement account, you may have addressed the distribution of your accounts in an RLT or created an SRT to handle your retirement accounts at your death which included “conduit” provisions. Under the old law, the trustee would only distribute required minimum distributions (RMDs) to the trust beneficiaries, allowing the continued “stretch” based upon their age and life expectancy. The conduit trust provisions protected the account balance, and only RMDs–much smaller amounts–were vulnerable to creditors and divorcing spouses. With the SECURE Act’s passage, a conduit trust structure will no longer work for long-term asset protection and growth because the trustee will be required to distribute the entire account balance to a beneficiary within ten years of your death (unless they are an eligible designated beneficiary, discussed above). You should discuss the benefits of an “accumulation trust” with your estate planning attorney. An accumulation trust is an alternative trust structure through which the trustee can take any required distributions and continue to hold them in a protected trust for your beneficiaries.

Consider Additional Trusts

If you have not done so already, it may be beneficial for you to create a trust to handle your retirement accounts at your death. Simple beneficiary designation forms–allowing you to name an individual or charity to receive funds when you pass away–might not fully address your estate planning goals and the unique circumstances of your beneficiaries. A trust is a great tool to address the potential downfalls to the new mandatory ten-year withdrawal rule under the SECURE Act and provide continued protection of a beneficiary’s inheritance.

Interested in learning more about protecting your retirement accounts? Reach out to Culpepper Law or call Tom at 937-589-4144.

[1] If a beneficiary is not considered a “designated beneficiary,” distributions must usually be taken by the fifth year following the account owner’s death.


Helping You Protect Your Family’s Future,
Tom L. Culpepper