Summary of the SECURE Act and Retirement Savings: What You Should Know

Rolled up U.S. Money

The most significant change to estate planning law in 2019 was the passage of the SECURE Act in late December. The Act is intended to increase and encourage retirement savings.

Benefits of the SECURE Act to Retirement Savings

The Setting Every Community Up for Retirement Enhancement, or SECURE, Act, is meant to address the fact that many Americans do not have adequate access to retirement accounts through their workplaces.

Benefits of the SECURE Act include:

  • Eliminating the age cap on contributing to retirement plans;
  • Postponing the age for required minimum distributions to age 72;
  • Making it more cost effective for employers to set up retirement plans;
  • Allowing up to $10,000 of student loan debt per student to be paid by a 529 plan;
  • Repealing the change to the “kiddie tax” made by the 2017 Tax Cuts and Jobs Act that caused certain unearned income of children to be subject to the tax rates applicable to trusts and estates, and
  • Allowing loans from retirement plans for costs associated with the birth or adoption of a child.

Possible Drawbacks of the SECURE Act in Payout Changes

In order to generate tax revenue to offset revenue losses under the SECURE Act, the required distribution payout period of a retirement plan to designated beneficiaries has been reduced to no more than 10 years in most cases.

Prior to the SECURE Act, the assets of an inherited retirement plan could be drawn out over the life expectancy of the designated beneficiary, if not voluntarily withdrawn faster. The SECURE Act only allows life expectancy payouts for “eligible designated beneficiaries,” which include:

  • The surviving spouse of the participant,
  • Disabled and chronically ill individuals,
  • Individuals not more than ten years younger than the participant, and
  • Minor children of the participant (not just any minor children) are also eligible designated beneficiaries. Minor children can take distributions over their life expectancy until they reach the age of majority, then the payout switches to 10 years.

After an eligible designated beneficiary dies, or any beneficiary who was already receiving life-expectancy distributions before the SECURE Act was enacted dies, the payout thereafter will be no more than 10 years.

Takeaways from the SECURE Act

Bottom line: existing beneficiary designations on retirement plans are still valid, but the payout scheme under the SECURE Act is greatly accelerated.

If you are concerned about the SECURE Act and how it affects your beneficiaries or you want to learn more about the SECURE Act, contact your estate planning attorney or call our office at (505)872-0505 to schedule an appointment.