February 2020
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

On December 19, 2019, Congress passed a new tax law called the SECURE “Setting Every Community Up For Retirement Enhancement” Act. There are many changes in this tax law for all of us to discuss, but we wanted to cover a few of the ideas in this article and then talk with you in more detail as needed.

The first topic to discuss is the elimination of the so-called “Stretch” provision for most non-spouse beneficiaries of inherited IRAs and other qualified retirement accounts. Under the old law, non-spouse designated beneficiaries could take distributions over his/her lifetime, but for many IRA account owners who pass away after 2019, their beneficiaries will have only 10 years to pay out the entire retirement account.

Under the SECURE Act that went into effect in January 2020, there are four types of beneficiaries that can still have the assets paid out to them over their lifetime:

  1.  Spousal beneficiaries
  2.  Disabled and chronically ill beneficiaries
  3.  Individuals who are not more than 10 years younger than the decedent
  4.  Minor children of the decedent, but only until they reach the age of majority

These four groups of eligible beneficiaries can still use their life expectancy to slowly have assets paid to them from an IRA or other retirement accounts.

Pitfall # 1 – This rule change will have the biggest impact on people who have non-spousal primary or contingent beneficiaries (usually children) ages 30 – 50 who are in their peak earning years. Beneficiaries younger than this will probably be in a lower income tax bracket, while older beneficiaries may be able to push distributions off until retirement, when they may be in a lower tax bracket again.

Pitfall # 2 – If you currently have a trust(s) named as the beneficiary of an IRA or qualified retirement account, is the language/instructions in the trust document telling the trustee that the assets must be paid out to the beneficiaries in not more than 10 years? Does your trust language only allow for the required minimum distribution to be distributed from any inherited IRA to the trust each year with a corresponding requirement for that amount to be passed directly out to the trust beneficiary? In either case, you may need to revise the language of your trust.

As we meet with our clients throughout the year, we want to review the beneficiaries and contingent beneficiaries for all IRAs, 401(k)s, 403(b)s, 457 plans, and other retirement accounts. If any assets are paid to a trust from a qualified retirement account, we need to make sure that the trust has the right type of language, or you may want your attorney to create an amendment to that trust.

The new SECURE Act has extended the age for required minimum distributions (RMDs) to start at age 72 rather than 70-1/2.

It also gives folks that are over the age of 70-1/2, and are still working, the ability to contribute to a Traditional IRA. Working septuagenarians (there many of them out there) have always been able to contribute to a Roth IRA or their company’s 401k, but this is the first time that contributions will be allowed to Traditional IRAs.

There are more provisions in this new tax law that we will be covering in future articles.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely-held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or e-mail Gary directly at .