If you are in the State of New Jersey and would like to discuss your estate plan, our team at Willis Law Group LLC is here to provide you with any assistance that you may need. To schedule a consultation, we encourage you to give our main office a call at (877) 296-2575 or attend one of our free educational workshops throughout New Jersey.
A new spending bill has been signed into effect that makes major changes to retirement plans. The new law is designed to provide more incentives to save for retirement, but it may require workers to rethink some of their estate planning at the same time.
The Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, changes the law surrounding retirement plans in several ways:
- Stretch IRAS. The biggest change eliminates Stretch IRAs. The prior law states that if you name anyone other than a spouse as the beneficiary of your IRA, the beneficiary can choose to take distributions over his or her lifetime and to pass what is left onto future generations (called the “stretch” option). The required minimum distributions are calculated based on the life expectancy of the beneficiary. This allows the money to grow tax-deferred over the course of his or her life, and to be passed onto their own beneficiaries. With the SECURE Act, beneficiaries of an IRA are required to withdraw all the money in the IRA within 10 years of the IRA holder’s death. In many cases, these withdrawals would take place during the beneficiary’s highest tax years, meaning that the elimination of the Stretch IRA is effectively a tax increase on many Americans. This provision will apply to anyone who inherits IRAs starting on January 1, 2020.
- Required minimum distributions. Under prior law, you have to begin taking distributions from your IRAs beginning when you reach age 70½. Under the SECURE Act, individuals who are not 70½ at the end of 2019 can now wait until age 72 before they have to take distributions.
- Contributions. The new law allows workers to continue to contribute to an IRA after age 70½, which is the same as rules for both 401(k)s and Roth IRAs.
- Employers. The tax credit businesses get for starting a retirement plan has been increased, and the new law makes it easier for small businesses to join multiple-employer plans.
- Annuities. The newly enacted legislation removes roadblocks that made employers wary of including annuities in 401(k) plans. What the new law has done is eliminate some of the fiduciary requirements used to vet companies and products before they can be included in a plan.
- Withdrawals. The SECURE Act allows an early withdrawal of up to $5,000 from a retirement account without penalty in the event of childbirth or an adoption. Previously, there was a 10% penalty for early withdrawals in most circumstances.
Given these changes with the SECURE Act being signed, workers need to immediately reevaluate their estate plans. Some people have used Stretch IRAs as an estate planning tool to pass assets onto their children and grandchildren. One way of doing this has been to name a trust as the IRA’s beneficiary, and these trusts may have to be reformed to adhere to the new rules. If a Stretch IRA is part of your estate plan, consult with your attorney to determine if you need to make changes.