President Trump recently passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 which is the first major retirement regulation in over a decade.  Intended to strengthen retirement security for Americans, the bill includes changes to traditional IRAs, required minimum distributions, and more.  We at Trinity Legacy Partners want to make you aware of key changes to the rules governing retirement accounts resulting from the SECURE Act and highlight several planning strategies that should be considered.

The new regulations offer additional flexibility for retirement account owners; however, it also limits the ability of non-spouse beneficiaries (i.e. children who inherit IRAs) to stretch required minimum distributions from inherited IRAs over their lifetime.  This change in the IRA stretch provisions for inherited IRAs is particularly important for individuals who name a qualified trust as a beneficiary of their retirement account as part of their estate plan.

It is important to comply with rules governing RMDs since there is a 50% penalty on failure to take the required distribution amount.  The following chart provides a comparison of key rules impacted by the SECURE Act.

Source: https://www.congress.gov/bill/116th-congress/house-bill/1994

IRA owners who named a qualified trust as an IRA beneficiary in order to control the timing of distributions of IRA assets to the trust beneficiary should review this planning strategy since the SECURE Act requires distribution of IRA assets within 10-years.  Beneficiary designations should be coordinated with the planning provided by a qualified estate planning attorney.

Since distributions from a traditional IRA are taxed as ordinary income, this type of account represents an ideal asset to pass to a qualified charity for individuals who are charitably inclined.  Additionally, IRA owners who want to pass IRA assets to a charity and family members may want to consider the use of a charitable remainder trust (CRT) as an IRA beneficiary.  This planning strategy offers the option to extend distributions to the CRT’s income beneficiary beyond the 10-year limit imposed by the SECURE Act and also benefit a qualified charity with the remaining assets at the end of the trust term.

The SECURE Act did not change the rules governing qualified charitable distributions (“QCDs”), and individuals can still make QCDs of up to $100,000 per year to qualified charities beginning at age 70 ½.  It should be noted that tax benefits of a QCD will be reduced by any tax-deductible contributions to a traditional IRA after age 70 ½ which is now available under the SECURE Act.

Please note that the information contained in this article is for educational purposes only and is not intended as tax or legal advice.  Individuals should consider scheduling a meeting to discuss the potential implications of the SECURE Act as applied to their unique situation.