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01.27.20   |   Insights

Big Changes for Your Retirement Planning – The New “Secure Act”

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The new SECURE Act (“Setting Every Community Up for Retirement Enhancement”) was signed into law on December 20, 2019, and affects many aspects of your retirement plan (401(k)s, IRAs, etc.) starting in 2020. Highlights for retirement plans include: 

  • Adoption/Birth Expenses – You may make penalty free withdrawals from retirement plans up to $5,000 for each birth or adoption. Withdrawals must be made within a year of the birth or adoption date and may be used to reimburse such payments made by you in that year. 
  • Required Beginning Date for Mandatory Withdrawals is 72 – Retirement participants may now wait until the year in which they turn 72 years of age for required minimum distributions (up from age 70 ½). 
  • Inherited IRA Distributions – Inherited IRA’s must be distributed in 10 years after death for most beneficiaries instead of stretching the inherited retirement account over the beneficiary’s life expectancy—Uncle Sam does not want to wait as long to collect taxes on the untaxed retirement account. 
  • Minor Beneficiaries – Inherited IRA’s for minors may be distributed based upon life expectancy until the minor reaches the age of majority (18 in Ohio), at which time the balance must be distributed within the following 10 years. 
  • Disabled Beneficiaries – Inherited IRA’s for disabled beneficiaries may still be distributed over the beneficiary’s life expectancy. 
  • 2019 Death of Participant – If a participant died in 2019, the inherited IRA may still be distributed and stretched over the beneficiary’s life expectancy. 
  • Business Owners – Business owners should review their retirement plans to ensure compliance under the new rules, such as including certain part time (over 500 hours per year or more) employees in the retirement plan who work three consecutive years for the employer. 


For the average retirement account, most beneficiaries at the participant’s death will no longer be able stretch the retirement account over the beneficiary’s lifetime with an inherited IRA. Most beneficiaries will have to distribute the retirement funds in an inherited IRA by December 31 of the year containing the 10th anniversary of the date of death. Beneficiaries may make incremental withdrawals during that period, e.g., 1/10 in year one, 1/9 in year two, 1/8 in year three, etc., or withdraw uneven amounts as desired, e.g., withdraw extra funds in a year in which the beneficiary has losses to offset extra income, or pull more for an emergency in any given year, or let it ride for 10 years, then pull the entire amount and pay the tax in one year. There is no penalty for a person under 59 ½ years old to withdraw funds from the new 10-year inherited IRA.

A.   SPOUSE AS BENEFICIARY. A surviving spouse may still roll over the decedent’s retirement plan to his/her own IRA, with the option to start penalty free withdrawals at age 59 ½ and being required to start minimum distributions at age 72, with annual recalculation of minimum distributions. If a surviving spouse is under 59 ½ years old and will need retirement plan distributions, the previous option of an inherited IRA (different than the spousal rollover) is available allowing a surviving spouse to begin penalty free minimum withdrawals the year after death based upon the surviving spouse’s life expectancy. This is an exception to the new 10-year rule for inherited IRAs. Larger withdrawals are also permitted from the inherited IRA which are of course subject to tax but not subject to early withdrawal penalties.

B. MINOR BENEFICIARIES. IF THE BENEFICIARY IS A MINOR CHILD OF THE DECEASED PARTICIPANT, the retirement plan may be rolled over to an inherited IRA to be distributed based upon the child’s life expectancy until the child reaches the age of majority (18 in Ohio). At that time, the child will then have 10 years in which to distribute the balance. If a minor child is a possible retirement plan beneficiary, naming an Ohio Transfers to Minors Act Custodian for that child as the beneficiary will avoid having to create a court administered guardianship for the minor child.

C. DISABLED AND CHRONICALLY ILL BENEFICIARIES. Disabled and chronically ill beneficiaries may still roll over a decedent’s retirement plan to an inherited IRA that is distributed based upon the beneficiary’s life expectancy. If one of your beneficiaries is disabled or chronically ill, you should consider options to be recommended by your Critchfield attorney, including trust planning, to ensure that a beneficiary’s benefits are not lost due to bad planning. “Disabled” means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration. “Chronically ill” means a licensed health care practitioner has certified that the beneficiary

i. is unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity, or

ii. has a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or

iii. requires substantial supervision to protect such individual from threats to health or safety due to severe cognitive impairment.

D. LARGE RETIREMENT ACCOUNTS. Consider an IRA with $2 million dollars and a 50-year-old child making $85,000 per year as the beneficiary of a deceased retirement plan participant. Under the pre-2020 rules, that child could withdraw the account down over a 34 year period. The first required taxable distribution would be about $59,000 and the account could continue growing for many years. The child’s tax bracket with an additional $59,000 of income would remain at 24%. Under SECURE in 2020 and beyond, that child, if spreading the account evenly over 10 years, would withdraw $200,000 and jump to a 35% bracket for that withdrawal year. Several strategies to consider include a married IRA owner naming the spouse and children as the beneficiaries. With a $2 million account and two children, giving half to the spouse (who can wait until 72 before required distributions and can spread out distributions over life expectancy) and half to the children results in $50,000 average distributions per child at the first spouse’s death and creates a new 10-year period at the second spouse’s death for the children to average out distributions for the balance of the retirement account.

Some large retirement account holders may consider annual conversions to Roth IRAs for parts of their retirement accounts. Income tax rates have recently significantly improved (a 2016 married taxpayer was in the 28% bracket at $91,150; a 2020 married taxpayer can make up to $171,050 and still be in the 22% bracket). A $100,000/year income recipient over 59 ½ in age could pull $71,000 in retirement funds (adjusted for other income tax outcomes such as increased taxation on Social Security) to convert to a Roth IRA and not increase the tax bracket that year when paying tax on the additional $71,000. The Roth would then grow tax free before and after death for the plan participant and for the beneficiary. 

Other options for large retirement accounts can be designed into the participant’s trust. See the next section E. below for examples.

E. TRUST AS BENEFICIARY. If you have designated your trust as a retirement plan beneficiary, you should consult your attorney to have your plan reviewed by one of our estate planning attorneys. Some trust plans were intentionally drafted to withdraw each year only the minimum required amount of distributions to be passed through to beneficiaries upon withdrawal. Under the SECURE Act, this would arguably prohibit retirement plan distributions for 10 years, and then distribute the entire amount all at once with a potentially huge income tax bill. Recall that the REQUIRED minimum distribution each year under SECURE is zero until the 10th year when the entire retirement account must be withdrawn. Such trusts can be amended to make the withdrawals optional every year through the 10-year deadline so the trust can distribute funds in the most sensible way needed, whether for the beneficiary’s personal needs or simply for the best tax planning. 

Minors. If there is a possibility that a minor child will be a trust beneficiary, the trust can provide for making annual withdrawals based upon the child’s life expectancy and immediate distribution to the child’s Custodian (a statutory trustee you choose who can hold the funds until the child is 25 if needed). Upon the child attaining the age of majority, the trust would change the distributions to be a 10-year plan with optional withdrawals and optional distributions so the trustee can do sound tax planning and better protect the assets for the beneficiary.

Disabled or Chronically Ill. If there is a possibility that a disabled or chronically ill individual will be a trust beneficiary, the trust can be designed as an “accumulation trust” which permits the trustee to make withdrawals over the beneficiary’s life expectancy but allows the trustee to retain the distributions in the trust to avoid the disabled or chronically ill beneficiary losing crucial benefits.

Large Accounts. If you have a large retirement plan (including IRAs) that could result in very high taxes for beneficiaries over a 10-year payout, the trust can give the trustee discretion to distribute retirement plan proceeds to children, grandchildren, spouses of children and grandchildren, etc. which would allow the taxes for the account distributions to be spread out and reduced by multiple taxpayers, often in lower tax brackets, rather than one or two children incurring all of the tax liability at a high bracket rate.


If you designate individuals as beneficiaries of your retirement plan, the key takeaway is for the beneficiaries to seek assistance with tax planning upon your passing. If you already have designated your trust as a retirement plan beneficiary, your trust should be reviewed by one of our estate planning attorneys to ensure that your goals are still being met. If your beneficiaries have a special circumstance (potentially large taxes for a large account, or if minors, disabled, or chronically ill beneficiaries, or if a spouse who may need distributions but is younger than age 59 ½), you should review your options with one of our estate planning attorneys to ensure that your goals are still being met. The SECURE Act has severely limited retirement account distribution options for a deceased participant’s retirement account or IRA, but timely planning can still maximize the effectiveness of your retirement plan.

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