The 2023 Secure 2.0 Act

First major change in retirement legislation since 2006 was the Setting Every Community Up for Retirement Enhancement Act (SECURE).

The impact of the SECURE Act on some retirees, near-retirees, and their future beneficiaries may significantly affect you, and it’s imperative to schedule a review of your retirement accounts and estate planning documents. Changes in the law impacted taxes and access to inheritances for some beneficiaries.

The Elimination of Stretch IRAs

One of the most important provisions of the SECURE Act is the removal of the stretch IRA required minimum distribution (stretch RMD). This change means many Americans will face a tax increase as non-spouse beneficiaries must spread withdrawals over a maximum of ten years and not the lifetime of the account holder. It can create significant problems for certain types of trusts developed before the SECURE Act. Previously, a trust could pass retirement assets of an IRA to a chosen beneficiary. If the trust is not updated to match the current SECURE Act language, there could be restrictions in accessing funds, causing tax liabilities down the line.

How The Secure Act Impacts Annuities

Annuities are also affected by the SECURE Act as the legislation eases restrictions to include them in 401(k)s. While this is a positive for lifetime income, the bill also lessens and even removes some of the fiduciary requirements to vet insurance companies and their financial products before allowing them into your 401(k) plan. This change, coupled with a reduction in overall standards the SEC imposed, creates an increased likelihood of negative consequences from poorly designed financial products and the possibility of insurance company failure.

The 2019 SECURE Act

SECURE Act reforms affected retirement plans in several ways, including:

• Ending the maximum age to contribute to a traditional IRA
• Raising the required minimum distribution age to 72
• Enabling some part-time employees to participate in company 401(k) plans
• Permitting penalty-free withdrawals up to $5,000 for funds used for qualified birth or adoption expenses
• Allowing parents to make withdrawals up to $10,000 from qualified 529 college savings plans for student loan repayment
• Increasing small employer access to retirement plans
• Expanding annuity options inside of retirement plans

The SECURE 2.0 Act Changes for 2023

There were some changes made to the original legislation that began in 2023, including:

• Raising the minimum distribution age to 73 and to 75 by 2033
• Reducing excise taxes from 50% to 25%, and an additional 10% if done timely for situations regarding birth and adoption expenses, terminally ill individuals, federally declared disasters, emergency personal expenses, and victims of domestic violence
• More flexibility with commercial annuities and partial annuities purchased by an IRA or other retirement plan, along with expanded exemptions for Qualified Longevity Annuity Contracts (QLACs)
• Exempting eligible designated beneficiaries of special needs trusts from the 10-year limitation on distributions

These updates to the SECURE Act legislation are complex. Estate planning attorneys, elder law attorneys, CPAs, and financial advisors receive training to understand the long-term tax implications of SECURE Act provisions. Many people may want to delay IRA distributions and continue to save, but an IRA may not be the best choice depending on your income level. You may need to consider paying taxes before beneficiaries inherit your IRA. Review your existing estate planning documents with your estate planning attorney. They will work with other professional advisors to ensure your estate and family are fully protected.

The SECURE Act and SECURE 2.0 Act will change your retirement options and estate planning decisions. Give us a call to discuss how we can help make sure your retirement assets pass to the next generation as smoothly as possible.

This article offers a summary of aspects of estate planning law. It is not legal advice and does not create an attorney-client relationship. For assistance, please contact our Natchez office at (601) 445-5011.