The SECURE Act (which took effect in January, 2020) really impacted the rules for beneficiaries of retirement accounts. Many people haven’t caught up to the new rules. Clients who have significant retirement assets need to talk and think through their beneficiary designation choices in the context of the new laws. (continue reading below for notes)

Let’s meet and check in for a fresh look at your retirement accounts – especially anything we haven’t talked through since January 1, 2020. We can do it as a specific conversation OR in the context of a biennial review and overall look at your assets and plan. We’re always available for you as a client on our Legacy Program.

Let’s get something on the calendar. Click here for calendly or call (562) 343-2843 to ask for Lorie.

Some notes on changes in the law:

The main negative consequence of the SECURE Act is that most non-spouse beneficiaries will have to pull out money from their inherited retirement accounts and pay taxes on the withdrawals WITHIN TEN YEARS of inheritance.

For our clients that have adult children who already earn significant incomes, receiving inherited IRA assets (subject to income tax within a ten year window) is a tax-inefficient way to receive assets.

There are exceptions to this compressed withdrawal timeline – those who can “stretch” the distributions in a more tax-efficient way: surviving spouses, individual beneficiaries within 10 years of age of the account owner (this makes siblings good potential beneficiaries of retirement accounts), minor children (not grandchildren — while they are minors or full-time students) and disabled or chronically ill individuals.

It’s even more important now for families with charitable intent to consider making charitable gifts through retirement accounts (possibly through donor-advised funds as well) rather than through trust funds, when possible.

We have significantly reduced our use of trusts as beneficiaries of retirement accounts EXCEPT when (1) beneficiaries are minor children; (2) beneficiaries need additional protection; (3) the account owner wants to take care of their surviving spouse but maintain control over the direction of the assets; and/or (4) the retirement accounts are very significant in size.

There’s a lot to consider here – including the concept of shifting retirement assets towards lower-earning beneficiaries and shifting regular trust assets towards higher-earning beneficiaries – all in the interest of being fair AND minimizing taxes.

Other strategies to explore include: (1) increasing the number of beneficiaries of retirement accounts (e.g. adding grandchildren); (2) distributing out a portion of retirement accounts to adult children at the passing of the first spouse; (3) ROTH IRA conversions; etc.