February 03, 2020

The SECURE Act (Setting Every Community Up for Retirement Enhancement) was passed and signed into law by Congress in December 2019, and its provisions went into effect on January 1, 2020. This new law aims to strengthen retirement security across the country and may have the largest impact on retirement planning since the Pension Protection Act of 2006.

The SECURE Act is complex and touches many aspects of financial planning. Some examples include:

The start age of Required Minimum Distributions (RMDs) has increased from 70½ to 72

Retirees will no longer have to take required minimum distributions (RMDs) from traditional IRAs and retirement plans by April 1 following the year in which they turn 70½. The new law generally requires RMDs to begin by April 1 following the year in which they turn age 72. This change has a cutoff and only applies to those turning 70½ after December 31, 2019 (it is not retroactive).

Stretch IRAs have been repealed

The most notable change may be the elimination of longstanding provisions allowing non-spouse beneficiaries who inherit traditional IRA and retirement plan assets to spread distributions — and therefore the tax obligations associated with them — over their lifetimes. The ability to spread taxable distributions after the death of an IRA owner or retirement plan participant, over what was potentially such a long period of time, was often referred to as the "stretch IRA" rule.

In general, the new law requires any beneficiary who is more than 10 years younger than the account owner to liquidate the account within 10 years of the account owner's death, unless the beneficiary is a spouse, a disabled or chronically ill individual, or a minor child. The shorter distribution period could result in unanticipated tax bills for beneficiaries who stand to inherit high-value traditional IRAs. This is also true for IRA trust beneficiaries, which may affect estate plans that intended to use trusts to manage inherited IRA assets. If you currently have either of these situations related to your traditional IRA and retirement plan assets (e.g. high value retirement accounts with children/grandchildren as beneficiaries or "conduit trusts" as beneficiaries) prompt review of your estate plan in light of the SECURE Act should be considered.

Finally, for those with charitable intentions, opportunities to defer taxation of IRA or retirement plan assets for non-spouse beneficiaries beyond 10 years may be possible using certain vehicles such as a Charitable Remainder Trust. Strict rules and tests are present, which ultimately ensure that charitable beneficiaries receive minimum trust assets over time, but payments to non-spouse beneficiaries could be extended beyond 10 years for tax savings. Key concepts to consider include the size of the account(s), willingness and intent for charitable causes to be beneficiaries of your retirement assets, and the long term costs (trust accounting, tax, legal, etc.) compared to actual income taxes saved with this type of estate planning.

Traditional IRA contribution age limit is repealed

People who choose to work beyond traditional retirement age will be able to contribute to traditional IRAs beyond age 70½. Previous laws prevented such contributions.

Availability of Income Annuity Option in Qualified Plans

New laws make it easier for employers to offer lifetime income annuities within retirement plans. Such products can help workers plan for a predictable stream of income in retirement. In addition, lifetime income investments or annuities held within a plan that discontinues such investments can be directly transferred to another retirement plan, avoiding potential surrender charges and fees that may otherwise apply.

The use of 529 Plans for Student Loan Repayment

529 account assets can now be used to pay for student loan repayments ($10,000 lifetime maximum) and costs associated with registered apprenticeships.

Medical Deduction AGI Limit at 7.5% through 2020

Taxpayers with high medical bills may be able to deduct unreimbursed expenses that exceed 7.5% (in 2019 and 2020) of their adjusted gross income. In addition, individuals may withdraw money from their qualified retirement plans and IRAs penalty-free to cover expenses that exceed this threshold (although regular income taxes will apply). The threshold returns to 10% in 2021.

The chart below summarizes some of The SECURE Act provisions:

While many of the provisions offer enhanced opportunities for individuals and small business owners, the elimination of the stretch IRA may be a notable drawback for investors with significant assets in traditional IRAs and retirement plans. It is important to review your estate-planning strategies with your legal and tax advisors to prevent heirs from potentially facing unexpectedly high tax bills".

If you have any questions or would like to speak with a Portfolio Solutions® Financial Advisor about your Financial or Estate Plan, contact Portfolio Solutions® today at (800) 448-3550!

Additional Resources

A summary of the major provisions of the bill can be found at

The full text of the bill with a clickable table of contents can be found at


Broadridge Investor Communication Solutions, Inc.

Heckerling Institute on Estate Planning (content from annual conference held January 13-17, 2020)

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