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The SECURE Act: How It Affects Inherited IRAs & Estate Plans

The Setting Every Community Up for Retirement Act (SECURE Act) became effective on January 1, 2020. For many beneficiaries of retirement plans, payout over life expectancy has been eliminated.

Under the old law, the “stretch IRA” was a widely-used estate planning tool. Taxpayers could have IRAs or other retirement plan benefits payable to a “designated beneficiary” or see-through trust, and the designated beneficiary or trust could withdraw payments over the life expectancy of a child, or even longer with a grandchild.

Under the SECURE Act, the life expectancy payout has been replaced by a 10-year payout rule, for all but five types of beneficiaries called “eligible designated beneficiaries.” The law takes effect for deaths occurring on or after January 1, 2020. Pre-2020 deaths will only get a partial exemption from the 10-year payout rule.

The SECURE Act carves out exceptions to the 10-year payout rule for the following “eligible designated beneficiaries:”

  • The surviving spouse of the taxpayer
  • A child of the taxpayer who has not reached the age of majority
  • A disabled individual
  • A chronically ill individual
  • An individual who is not more than 10 years younger than the taxpayer who died

Taxpayers who do not own any retirement benefits, or are leaving all of their retirement benefits to charity, will not be affected. If an estate plan is focused on providing a long-term stretch payment for children or grandchildren, these plans should be revisited as soon as possible. An estate plan that leaves retirement benefits to a “conduit trust” should also be reviewed right away.

Leaving retirement benefits to a charitable remainder trust may be appealing to taxpayers who are charitably inclined. A charitable trust can eliminate most of the income tax on the IRA and provide a lifetime payout to beneficiaries in lieu of the lost life expectancy payout. This is only a brief overview of how the SECURE Act will affect your estate plan.

If you have questions or would like more information, please contact Donita Joseph at or 844.4WINDES (844.494.6337).
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