Congress

NEWS WRAP - SECURE Boon to Retirement Planning but with Estate Planning Implications

On 20 December 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law*. The bill had already passed the House in a resounding 417-3 vote, and the reasons why it had near-unanimous bi-partisan support are clear.

SECURE promises to herald new ways of thinking about, and preparing for, retirement as the US moves into the 2020s. The Act seeks to enhance the coverage of qualified plan rules, not least by allowing smaller employers to collaborate so they can offer their staff 401(k) plans and, in a move that answers a frequent criticism, by giving long-standing part-time workers access to 401(k) plans.

Overall, SECURE should make it easier for employers to offer both full-time and part-time employees the ability to effectively save for retirement via official workplace plans. In fact, according to the Insured Retirement Institute’s Paul Richman, SECURE is likely to create 700,000 new retirement accounts.**

SECURE: not such a boon to estate planning

However, SECURE has some serious implications for IRA plans, not least in the area of estate planning and the “stretch IRA”.

SECURE means that, but for a few exceptions, those who inherit an IRA after 2019 will be required to withdraw the entire fund within 10 years of the date of death of the holder – a change that seems to be a clear revenue raiser for the IRS.

This effectively means that beneficiaries will no longer be able to compound income tax-free by deferring IRA distributions. Previously, the beneficiaries of so-called 'stretch IRAs' could be the tax-free heirs to significant IRA balances, while others were able to benefit from 'conduit' or 'see-through' trusts that protected the IRA balances for extended periods.

Ultimately, it means that many will have to go back to the drawing board in order to consider how to best optimise their IRAs for the purposes of estate planning, particularly if they have concerns about whether a beneficiary is prudent enough to withdraw the entirety of plan without giving way to profligacy.

However, not everyone will be subject to the new 10-year payout rule; eligible designated beneficiaries, who will be able to with withdraw plan assets over their life expectancy rather than within the new limited 10-year period, include:

  • Surviving spouses
  • Chronically ill heirs as defined in Code Section 72(m)(7)
  • Disabled heirs as defined in Code Section 7702B(c)(2) with certain modifications
  • Minor children (although the 10-year period begins at age 18)*

Blacktower (US) LLC for expat retirement planning

Blacktower in the United States specialises in helping cross-border individuals find the right retirement and estate planning strategy for their unique circumstances, including guidance on tax planning and financial advice.

We can help you review and manage your retirement accounts, including your existing UK pensions, so that you can be fully aware of your rights, responsibilities and options. Contact us today for more information.

Disclaimer: Blacktower (US) LLC is not a tax adviser and independent tax advice should be sought. The above does not constitute advice and Blacktower makes no recommendation as to the suitability of any products or transactions mentioned.

* https://www.congress.gov/bill/116th-congress/house-bill/1994/text Accessed 03-01-19

** https://www.fa-mag.com/news/retirement-bill--near-passage--may-disrupt-advisor-rollover-business-53273.html?section=3&page=2 Accessed 03-01-19

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