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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Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.