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SECURE Act & CARES Act: Changes To IRAs, RMDs, & Estate Plans

Many people’s estates typically include individual retirement accounts (IRA). Be aware that two major laws were recently passed, the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and have a direct effect on IRAs.

In a nutshell, the CARES Act waives required minimum distribution (RMD) rules for IRAs (and certain defined contribution plans) for calendar year 2020. If you are fortunate enough that you do not need to make withdraws from your IRA, there is an opportunity to leave more for your heirs in your retirement plan. However, keep in mind that because the SECURE Act generally put an end to ‘stretch’ IRAs, the estate planning benefits of inheriting IRAs are somewhat muted.

RMD Rules Waived

Not taking RMDs in 2020 is particularly advantageous because the amount of the distribution is based on year-end 2019 account values. Otherwise, you might be forced to liquidate account assets at depressed values during the stock market downturn.

The waiver covers both 2019 RMDs required to be taken by April 1, 2020 and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.

‘Stretch’ IRAs Eliminated

Perhaps more important for some estate plans, the SECURE Act eliminates so-called ‘stretch’ RMD provisions that have allowed the beneficiaries of inherited IRAs and defined contribution accounts to spread the distributions over their life expectancies. Younger beneficiaries could use the provision to take smaller distributions and defer taxes while their accounts grew.

Under the SECURE Act, most beneficiaries must withdraw the entire balance of an account within 10 years of the owner’s death. However, they do not have to follow any set schedule. They can wait and withdraw the entire amount at the end of 10 years if they wish.

The new rules apply only to those inheriting from someone who died after 2019. Thus, if you inherited an IRA years ago, you will not be subject to the new rules with respect to your RMDs. However, when your beneficiaries inherit the IRA from you, they will be subject to the new rules.

Review Your Plans

The changes made by the CARES Act and the SECURE Act may have an impact on your retirement and estate plans. We can help you review your plans to make sure they continue to meet your objectives.

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