Kevin’s Peace of Mind
www.kevintharpe.com (770) 503-1022
Learn the Facts and SECURE Your Assets What Does the SECURE Act Mean for Your Retirement?
In my monthly newsletter, I usually like to share stories about my family and friends so my clients can get to know a little bit about me outside of my practice as an attorney. However, a new law went into effect recently that will have both positive and negative impacts on my clients and our families. So, I decided to set aside this month’s issue to talk about the highlights of this new legislation called the SECURE Act. The SECURE Act stands for Setting Every Community Up for Retirement Enhancement and took effect Jan. 1, 2020. It’s one of the most significant pieces of retirement tax legislation since the creation of the Roth individual retirement account 20 years ago. The SECURE Act makes some changes to the 401(k) and IRAs, but it also leaves some things the same. Taxes will always go along with retirement plan accounts — Roth IRAs being the exception. Income taxes apply when you withdraw from your retirement account and when you leave your retirement account to your nonspouse beneficiaries (i.e., children or grandchildren). However, if your spouse is your beneficiary, nothing has changed. They will still be able to rollover your accounts into their own, tax free, and start taking mandatory distributions when they turn 72. The biggest change to come with the SECURE Act, at least for my clients, involves tax choices for nonspouse beneficiaries. Before the new rules went into effect, if your child, grandchild, or revocable trust inherited IRA or 401(k) money from you, they had the tax choice to either accept the whole lump sum of the IRA or 401(k) proceeds and pay income taxes on Here is what the SECURE Act does not change —THE TAXES.
the whole thing or choose to stretch out the payments for a period of time — even their lifetimes. They could still continue enjoying the tax-advantaged status of an IRA for several decades. If your revocable trust was a beneficiary, those designated as beneficiaries of the trust could also enjoy asset protection. This type of account was called a stretch IRA. The SECURE Act has eliminated the stretch IRA. Your children, grandchildren, or the beneficiaries of your revocable trust can’t stretch payments over their life expectancy anymore. Now, if we leave IRA or 401(k) proceeds to our children, grandchildren, or revocable trust, they’ll have to either choose a“lump-sum payment”and pay taxes on it or stretch out payments for no longer than 10 years. Since naming your children, grandchildren, or your revocable trust as a beneficiary will not change the taxes under the SECURE Act, the real question to ask yourself is this: If the answer is very important, then it’s essential to name a revocable trust as the beneficiary of your retirement plan. If you establish a trust, your kids and grandkids will still have to pay taxes on the full amount within 10 years. But with a trust in place, they can take their minimumwithdrawal, pay taxes on it, and then put it right back into the trust to ensure protection in the case of any legal problems the beneficiary may have, including a divorce. At a recent conference I attended, a family lawyer spoke. He asked us this question: “What do estate planning and divorce lawyers have in common?”The answer was that estate planning attorneys work on establishing trusts so that in the event of a divorce, their clients are How important is asset protection for my beneficiaries (children or grandchildren)?
protected from the lawyers who represent their soon-to-be ex-spouses. That family lawyer said he knows trusts work because, in his career, he saw that trusts always protected every last dime of that inheritance. As an estate planning attorney, protecting inheritance is always my goal. If you’re my client, you probably already have a revocable trust, and you have most likely named your trust as the beneficiary of your retirement plan. Your main purpose for doing this was to protect your retirement account for your surviving spouse, children, or grandchildren. If you’re not my client, now is the time to get that ball rolling. If you care about protecting your assets for your beneficiaries, then you need to start a revocable trust to ensure the legal protection of your retirement plan as well as all assets when something happens to you without ever giving up ownership during your lifetime. The SECURE Act will unroll the most significant changes to retirement legislation we’ve seen in at least a decade. Make sure your plan is up to date to protect your family.
-J. Kevin Tharpe
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