Have you heard of the SECURE Act? If you have not, now is the time to learn about the Act as the changes are significant and most likely will impact your legacy planning. Why? Because it could drastically change your well laid out plans for legacy.

Add to the SECURE Act the strong possibility of increases in tax rates in the near future, the combination could create a devastating impact for your beneficiaries, including the annuity beneficiaries. Between the changes caused by the SECURE Act and possible increased tax rates, you have a ticking time bomb. Time for you to be informed so you can protect your hard earned retirement savings from Uncle Sam. Even though the discussion will not be focused on retirement annuities, it does apply to retirement annuities in qualified accounts and IRAs.

So, watch the video till the end to learn what top industry experts are recommending to protect your hard earned retirement savings from Uncle Sam.

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Table of Contents:

00:00 – Introduction
01:37 – Background Information on The SECURE Act
02:28 – Do you have much of your retirement in qualified accounts and IRAs?
03:13 – Taxes on Inherited IRA prior to The SECURE Act
04:21 – Tax on Inherited IRAs under The SECURE Act
05:36 – Much Needed Tax Planning Due to The SECURE Act
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How the SECURE Act Could Disrupt Your Existing Legacy Planning

In December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law, seeking to promote retirement savings while giving Americans greater access to workplace savings plans. While the Act brings several positive changes, it also has potential consequences for those who have already implemented established legacy planning strategies.

One of the significant impacts of the SECURE Act lies in its alteration of the rules regarding inherited IRAs and retirement accounts. Under previous laws, beneficiaries could stretch out the distribution of inherited retirement accounts, providing a long-term tax-advantaged inheritance. However, the SECURE Act imposes new restrictions on the stretch option, potentially derailing existing legacy planning.

Before the SECURE Act, non-spouse beneficiaries could generally spread their required minimum distributions (RMDs) over their lifetimes. This allowed the remaining balance of the account to continue growing tax-deferred over decades. The new law now requires beneficiaries to distribute the entire account balance within ten years, with some exceptions for minor children, disabled individuals, and those within ten years of the account owner’s age.

The compressed distribution timeline introduced by the SECURE Act is likely to result in larger tax bills for beneficiaries. Previously, beneficiaries could choose distributions based on their individual life expectancy, minimizing the impact of taxes. Now, they only have ten years to withdraw the funds fully, which might bump them into higher income tax brackets or subject them to substantial tax bills in a short period.

For those who had intended to leave significant retirement assets to future generations, the SECURE Act necessitates careful consideration and potentially a revision of their legacy planning strategies. Some individuals used the “stretch IRA” technique to minimize the tax burdens on their heirs while maximizing the value of the inherited retirement accounts.

Although changes due to the SECURE Act might force a rethink of these strategies, there are alternative planning options available for individuals looking to mitigate the tax consequences for their beneficiaries. One possibility is to leverage life insurance policies to create a tax-free source of wealth for heirs while leaving retirement accounts to charities or other tax-favored beneficiaries.

Another solution may involve implementing Roth conversions during retirement to reduce the potential tax burden on beneficiaries. By shifting some qualified retirement funds into a Roth IRA, account owners can pay the taxes upfront, allowing heirs to inherit the converted amounts tax-free.

Reviewing and adjusting estate planning documents, such as wills, trusts, and beneficiary designations, is essential. It is crucial to work with experienced financial advisors and estate planning attorneys who can identify the best course of action based on your personal circumstances and financial goals. Rewriting the provisions of a trust or adjusting beneficiaries can help align your legacy planning with the new laws and minimize potential tax consequences for your loved ones.

While the SECURE Act brings positive changes to retirement savings, it is vital to recognize its potential effects on existing legacy planning. Taking proactive steps to reassess and adapt your strategy in light of these changes can help ensure that your hard-earned assets are distributed as intended while minimizing any unintended financial burdens on your loved ones.