By Rhonda A. Miller

Miller is a Partner based out of Tysons, VA

[12.20.2019 Tysons] The SECURE Act will go into effect January 1, 2020. This will affect all inherited retirement plans.  The new law still allows spouses to do a spousal rollover for his or her lifetime.  The set of beneficiaries that is affected by the SECURE Act is when anyone but a spouse inherits the retirement plan.  In these instances, the rollover period is limited to 10 years.  This means the money needs to come out of the retirement plan over a 10-year period.

As we are heading into a new year, you might have already dealt with the death of a loved one in 2019 and not rolled over the retirement plans.  If someone dies before December 31, 2019, the old laws should apply.  That means the beneficiaries of the retirement plan can do a lifetime rollover.  Often people make their Trust the beneficiaries of their retirement plans.  Here is where it gets a little tricky.  In those instances, the beneficiaries can still do a lifetime rollover as long as the language in the Trust is correct. If it is not then it must be corrected before the end of this tax year.  That means in the next 11 days.  If this is not done then that estate will be subject to the new SECURE Act and the 10-year roll over.

Let us look at an example of how the SECURE Act would affect a beneficiary (Bob) receiving $1M  in a retirement plan from his parent.  The $1M is rolled over and grows at an interest rate of 7%.  Bob would get a distribution of $142,378.  This is enough extra money to move Bob into a higher tax bracket.  There are some exceptions to whom this applies (beneficiaries under a disability or incapacity) but how that is classified is not entirely clear yet.

The affect of the SECURE Act could cause financial issues for children or grandchildren in their prime working years, as the retirement funds could force that child or grandchild to pay more income tax overall.

If you have a trust, you will need to have a lawyer revise the language to account for the impact of the new SECURE Act.

There are some great solutions to avoid the results illustrated above. Rhonda A. Miller (Lead of the Estate and Tax Planning Department) at Dunlap Bennett & Ludwig is ready to work with you to avoid that situation. She is giving a National Seminar on this subject to attorneys, CPAs, and financial planners on February 25, 2020 for National Business Network.  As always DBL strives to be on the cutting edge of new laws. Call 1-800-747-9354 or email for an appointment to understand how this new law could affect you.  It is crucial as a beneficiary that you make sure your estate trust is written correctly before the end of the year.

Posted in: Estate Planning

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