Probate & Tax Section: SECURE 2.0 ACT Brings Additional Estate Planning Opportunities

By

Overview: When the SECURE Act passed in late December 2019, it changed the most popular retirement plans and altered the world of estate and financial planning. Now, the SECURE 2.0 Act is set to build upon its predecessor and significantly change the laws regarding retirement savings.

In a seemingly unimaginable move by Congress, twice in three years, there is new legislation focused on encouraging Americans to better save for retirement. SECURE 2.0 is a reconciliation of three separate bills – the House’s Securing a Strong Retirement Act, the Senate’s Enhancing American Retirement Now Act (EARN Act) and Retirement Improvement and Saving Enhancement to Supplement Health Investments for the Nest Egg Act (RISE and SHINE Act). Legislators intend that the changes to the SECURE Act will further increase access to retirement plans, streamline administration and reporting requirements and preserve retirement income.

This article will discuss only a few pertinent impacts of this new law on estate, tax and retirement planning.

Required Beginning Date

Prior to the SECURE Act, age 70 ½ was the triggering age when workers were required to take minimum distributions (RMDs) from their IRAs. That age was expanded from 70 ½ years old in 2019 to now 73 years old. It will increase to 75 years old beginning on January 1

2033.1 For those who were confused or erroneously failed to take their RMDs, SECURE 2.0 has an added benefit; it reduced the 50% penalty to 25%. The penalty can be further reduced to 10% if the error was corrected in a timely manner. Individuals may file for an abatement of the tax. Plan sponsors who are correcting the error may request a waiver on the participant’s behalf through the IRS’s Voluntary Correction Program.

What does that mean for you? Flexibility in taking distributions allows for longer periods of tax-deferred growth in retirement accounts. With a larger IRA comes a heftier tax upon the eventual distribution. Also, since RMDs are based on life expectancy, a delayed starting age will result in a larger required distribution from an IRA. Proper tax planning should address the anticipated RMDs and the recipient’s expected tax rate.

Opportunities For Surviving Spouse2

Previously, the options for a surviving spouse who inherited an IRA were limited to a spousal roll over, an inherited IRA, or spousal election, whereby the beneficiary could treat the spouse’s IRA as their own. Now, the surviving spouse may also elect to be treated as the decedent’s employee. This election allows RMDs based on the longer distributions in the Uniform Life Table instead of the Single Life Table that is usually applied.

continued on next page >