• Home
  • Background
    • About Us
    • Q&A
    • Disclosures
    • Privacy Policy
  • Services
    • Planning Process
  • Clients
    • Business Owners
    • Individual Professionals, Families, Retirees
  • Contact Us
    • Newsletter Sign-Up
    • Useful Websites & Quick Hits
  • Account Access
  • News
    • 2021 News Articles >
      • REVENGE OF THE NERDS - Internet forums vs. the professionals
      • Protect Your Financial Information
      • 2021 January Market update - A rollercoaster year ends on a high note
    • 2020 News Articles >
      • December Client Letter - Cruising at 30,000 Feet
      • 9 Tax Facts & Tips to Save You Money
      • 9 Smart Planning Moves to Consider
      • November Client Letter - Election 2020
      • 7 Financial Planning Steps for Year End 2020
      • 6 Tips on Filing the FAFSA
      • Circling Back to the SECURE Act!
      • A September Pothole
      • 6 Steps That Put You on the Path to a Successful Retirement
      • Consumer Scams Part 2
      • September 2020 Client Letter
      • Consumer Scams
      • May Client Letter-- Worst-Ever Economy Yet Stocks Show Best Monthly Gain Since '87
      • Why Waiting For A Market Rebound Could Cost You
      • How The Greatest Generation Approached September 11th
      • Laid Off And Near Retirement - What Now?
      • The SECURE Act
      • Market update: When favorable fundamentals collide with uncertainty
    • 2015 News & Articles >
      • To be happy, be grateful. - It's science!!
      • Market Volatility - So Now What?
      • Retirement planning: Start early or start late – just start
      • 2015 Financial Planning Checklist
      • 2014 In Review - A bullish mood and risks that dot the landscape.
      • A sneak peek at 2015 – What to keep an eye on
      • Getting The Most Out of Financial Aid for College
    • News - Archives >
      • 2014 - Cheaper by the Dozen: 12 smart year end planning moves
      • 2014 - How safe is your personal information?
      • 2014 - Hey, what’s your number?
      • 2014 - What did we do before GPS?
      • 2014 - Changing Jobs Checklist
      • 2013 - US Government Shutdown - What it means
      • 2013 - Investing in College
      • 2012 - Getting (back) on track - The best part of my job…
      • 2011 - The Henny Penny School of Investment Wisdom
      • 2011 - 8 Ways to Help Couples Overcome Money Conflicts
      • 2011 - Intelligent Computer Shopping
      • 2011 - 7 things you and your student should discuss before they head off to college
      • 2011 - 7 mistakes to avoid when exiting your business
      • 2011 - Why you need an Estate Plan even if you don’t live in a mansion
      • 2011 - Celebrating Irish Heritage
      • 2010 - Priorities: Retirement Planning Vs College Savings for Children
      • 2010 - in review, and a look toward 2011
      • 2010 - New Years Resolutions - 2011
      • 2010 - Business Owners – a special case for diversification
      • 2010 - Year End Planning 2010
      • 2010 - Paying for college - Applying for student aid, determining your Expected Family Contribution
      • 2010 - Paying Taxes
      • 2010 - Job-Loss
      • 2010 - Habits
      • 2009 - Shopping
      • 2009 - Gift-Idea
      • 2009 - Thanksgiving
      • 2009 - Q3
      • 2009 - Recovery
      • 2009 - Results
      • 2009 - Digging
      • 2009 - Time
      • 2009 - Considering
      • 2008 - Planning
      • 2008 - Resolutions
    • Life Transitions >
      • Get A Job/Leave Job >
        • 9 Questions to ask your CPA at tax time
        • Getting (back) on track - the best part of my job
        • Changing Jobs Checklist
        • Job Loss
        • Taxes - 7 ideas to ease the burden - 2018
        • Year End Planning Checklist: 12 smart planning moves to consider
      • Marriage/Divorce/Re-Married >
        • 8 Ways to Help Couples Overcome Cash Conflicts
      • Kids (Birth/College/Marriage) >
        • 7 Things you and your student should discuss before they head off the college
        • Getting The Most Out of Financial Aid For College
        • Investing In College
        • Budgeting For Students
        • Save on Textbooks
        • Subsidized vs unsubsidized loans – what’s the difference?
        • 7 Tips for Your College Bound Student
        • “What I did on my Summer Vacation – 2019”
        • Budgeting for College Students - 2018
        • Most Significant FAFSA Changes in over 20 Years!!
        • Direct 529 Plan Changes To Be Implemented
      • Birth/Death >
        • Is a cash windfall in your future?
        • Planning for People with Special Needs
    • Client Letters >
      • 2019 - July Client Letter: Records Are Made To Be Broken
      • 2018 - Summer's Hot Issues
      • 2018 - November Market Update:
      • 2016 - January Client Letter - A volatile year ends with a whimper
      • 2016 - September Letter to Clients: The Ides of September?
      • 2016 - November Letter to Clients: The Final Countdown?
      • 2016 - December Letter to Clients: Near Term Impact of Trump's Victory
      • 2015 - September Client-letter: Looking past scary headlines
      • 2015 - November Client Letter: The Clouds Part
      • 2015 - December Client Letter, A Baker's Dozen: 13 Smart Planning Moves

The SECURE Act

As 2019 came to a close, the President signed into law a sweeping series of changes that will affect how we save for retirement. Officially entitled the Setting Every Community Up for Retirement Enhancement Act, but more commonly known as the SECURE Act, the new law includes both welcome changes and controversial elements.

The largest number of questions we’ve received, and one we’ll address first, is about the change to the rules that govern inherited IRAs, or so-called stretch IRAs.

Previously, if you inherited an IRA, you were allowed to take distributions from the retirement account over your life expectancy. That is to say, a healthy 40-year-old person who inherited an IRA from his or her mom or grandfather could withdraw the funds over several decades.
While there are exceptions for spouses, minor children (until they reach the age of majority), disabled individuals, the chronically ill, and those within 10 years of age of the decedent, the new law requires that you withdraw the assets within 10 years if the decedent passed away after December 31, 2019. There are no changes to inherited IRA accounts for those who died prior to 2020.

In addition to the initial tax bite and the implications for estate planning, you may lose out on the tax deferred benefits that accrue from sheltering assets in an IRA account over an extended period of time.

Yet, there are ways to reduce the impact.  For example, let’s say Tom is 63 years old, plans to retire when he is 68, and inherits an IRA from his uncle valued at $300,000. Recognizing that his income will decline at retirement, Tom may decide to delay withdrawals until he reaches 69, when he expects to be in a lower tax bracket.  Conversely, Tom may also decide to make minimal distributions before he retires, but we may want to make sure distributions do not push him into a higher tax bracket.  Or consider Cindy, who is 22 years old and inherits an IRA. She may decide to accelerate withdrawals if she expects to be in a lower tax bracket during the front-end years of the ten-year required distribution period.

Trusts as beneficiaries—changes are coming
This may sound a bit confusing and I’ll try to be brief. If you have additional questions, I would be happy to discuss options in more detail and tailor any recommendations. But I would be remiss if I didn’t share some of my thoughts regarding trusts.

For starters, it’s always a good idea to periodically review beneficiaries whether or not the tax laws change.

That said, when it comes to trusts as the beneficiary of an IRA, generally speaking there are two types of trusts: conduit and discretionary (accumulation trusts).  With a conduit trust, we may be facing a situation that doesn’t allow the beneficiary to receive a distribution until the tenth year. Needless to say, this would create a very large tax bill when the distribution is received.

With an accumulation trust, the distributions from the inherited IRA are paid to the trust and the trustee has greater discretion as to whether the funds will be held within the trust or paid to the beneficiary.  While this provides greater control, it may come at the cost of much higher taxes. As you may already be aware, the tax rate applied to funds in a trust is much steeper than individual tax rates, i.e., income over $12,750 in the trust is taxed at 37%.  Of course what I have provided here is simply a broad overview. There may be other options to consider.

For most folks, the death of the stretch IRA is creating some challenges on the estate-planning front. We are happy to discuss alternatives and reduce some of the confusion surrounding the new law.
​
Long overdue changes
While the law governing stretch IRAs is creating challenges, there are also big, positive changes that we believe are long overdue.
  1. If you turned 70½ on January 1, the initial required minimum distribution (RMD) for a traditional IRA is being raised from 70½ to 72.
  2. You may continue to contribute to a traditional IRA past the age of 70½, as long as you are working and have earned income.
 
People are living and working longer. In our view, these changes are welcome.
  
Other changes include:
  1. Through the first year of an adoption or birth, parents can withdraw up to $5,000 without penalty from a traditional IRA or employer-sponsored retirement plan, such as a 401(k).
  2. Annuity options improve within a 401(k).
  3. Part-time employees will receive greater access to 401(k) plans, and several provisions make it easier for small businesses to offer retirement plans.
  4. Up to $10,000 in assets held in a 529 plan may now be used to repay student loans.
  5. The new law requires the Department of Labor to propose rules that will illustrate the participant’s projected monthly income in retirement based on current retirement assets.
  6. A plan participant will no longer be able to access 401(k) funds for loans with a credit card.
 
Let me add one final comment on the ability to make contributions to IRAs past 70½ and QCDs, or qualified charitable distributions. You may continue to directly transfer up to $100,000 per year to a qualified charity from your IRA at 70½. You may also decide to wait until you are 72 to donate via a QCD, which will satisfy the RMD requirement.

Going forward, however, IRA contributions made after age 70½  cannot also be part of a QCD.

This means that if you contribute $6,000 to a traditional IRA after 70½ and later donate $50,000 in a QCD, you will lose the deduction for $6,000 of that QCD. The remaining $44,000 of your donation will still qualify as a QCD.

As always, when it comes to taxes, let me know if you have questions!  ~John Davidson
Your comments and questions are always welcome.
We look forward to hearing from you.  mail@kyleshill.com


Sign up for our newsletter!

The information being provided is strictly as a courtesy.  When you link to any of the web sites provided here you are leaving this web site.  We make no representation as to the completeness or accuracy of information provided at these web sites.  Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site.  When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.  

- John Davidson, CFP
  • Home
  • Background
    • About Us
    • Q&A
    • Disclosures
    • Privacy Policy
  • Services
    • Planning Process
  • Clients
    • Business Owners
    • Individual Professionals, Families, Retirees
  • Contact Us
    • Newsletter Sign-Up
    • Useful Websites & Quick Hits
  • Account Access
  • News
    • 2021 News Articles >
      • REVENGE OF THE NERDS - Internet forums vs. the professionals
      • Protect Your Financial Information
      • 2021 January Market update - A rollercoaster year ends on a high note
    • 2020 News Articles >
      • December Client Letter - Cruising at 30,000 Feet
      • 9 Tax Facts & Tips to Save You Money
      • 9 Smart Planning Moves to Consider
      • November Client Letter - Election 2020
      • 7 Financial Planning Steps for Year End 2020
      • 6 Tips on Filing the FAFSA
      • Circling Back to the SECURE Act!
      • A September Pothole
      • 6 Steps That Put You on the Path to a Successful Retirement
      • Consumer Scams Part 2
      • September 2020 Client Letter
      • Consumer Scams
      • May Client Letter-- Worst-Ever Economy Yet Stocks Show Best Monthly Gain Since '87
      • Why Waiting For A Market Rebound Could Cost You
      • How The Greatest Generation Approached September 11th
      • Laid Off And Near Retirement - What Now?
      • The SECURE Act
      • Market update: When favorable fundamentals collide with uncertainty
    • 2015 News & Articles >
      • To be happy, be grateful. - It's science!!
      • Market Volatility - So Now What?
      • Retirement planning: Start early or start late – just start
      • 2015 Financial Planning Checklist
      • 2014 In Review - A bullish mood and risks that dot the landscape.
      • A sneak peek at 2015 – What to keep an eye on
      • Getting The Most Out of Financial Aid for College
    • News - Archives >
      • 2014 - Cheaper by the Dozen: 12 smart year end planning moves
      • 2014 - How safe is your personal information?
      • 2014 - Hey, what’s your number?
      • 2014 - What did we do before GPS?
      • 2014 - Changing Jobs Checklist
      • 2013 - US Government Shutdown - What it means
      • 2013 - Investing in College
      • 2012 - Getting (back) on track - The best part of my job…
      • 2011 - The Henny Penny School of Investment Wisdom
      • 2011 - 8 Ways to Help Couples Overcome Money Conflicts
      • 2011 - Intelligent Computer Shopping
      • 2011 - 7 things you and your student should discuss before they head off to college
      • 2011 - 7 mistakes to avoid when exiting your business
      • 2011 - Why you need an Estate Plan even if you don’t live in a mansion
      • 2011 - Celebrating Irish Heritage
      • 2010 - Priorities: Retirement Planning Vs College Savings for Children
      • 2010 - in review, and a look toward 2011
      • 2010 - New Years Resolutions - 2011
      • 2010 - Business Owners – a special case for diversification
      • 2010 - Year End Planning 2010
      • 2010 - Paying for college - Applying for student aid, determining your Expected Family Contribution
      • 2010 - Paying Taxes
      • 2010 - Job-Loss
      • 2010 - Habits
      • 2009 - Shopping
      • 2009 - Gift-Idea
      • 2009 - Thanksgiving
      • 2009 - Q3
      • 2009 - Recovery
      • 2009 - Results
      • 2009 - Digging
      • 2009 - Time
      • 2009 - Considering
      • 2008 - Planning
      • 2008 - Resolutions
    • Life Transitions >
      • Get A Job/Leave Job >
        • 9 Questions to ask your CPA at tax time
        • Getting (back) on track - the best part of my job
        • Changing Jobs Checklist
        • Job Loss
        • Taxes - 7 ideas to ease the burden - 2018
        • Year End Planning Checklist: 12 smart planning moves to consider
      • Marriage/Divorce/Re-Married >
        • 8 Ways to Help Couples Overcome Cash Conflicts
      • Kids (Birth/College/Marriage) >
        • 7 Things you and your student should discuss before they head off the college
        • Getting The Most Out of Financial Aid For College
        • Investing In College
        • Budgeting For Students
        • Save on Textbooks
        • Subsidized vs unsubsidized loans – what’s the difference?
        • 7 Tips for Your College Bound Student
        • “What I did on my Summer Vacation – 2019”
        • Budgeting for College Students - 2018
        • Most Significant FAFSA Changes in over 20 Years!!
        • Direct 529 Plan Changes To Be Implemented
      • Birth/Death >
        • Is a cash windfall in your future?
        • Planning for People with Special Needs
    • Client Letters >
      • 2019 - July Client Letter: Records Are Made To Be Broken
      • 2018 - Summer's Hot Issues
      • 2018 - November Market Update:
      • 2016 - January Client Letter - A volatile year ends with a whimper
      • 2016 - September Letter to Clients: The Ides of September?
      • 2016 - November Letter to Clients: The Final Countdown?
      • 2016 - December Letter to Clients: Near Term Impact of Trump's Victory
      • 2015 - September Client-letter: Looking past scary headlines
      • 2015 - November Client Letter: The Clouds Part
      • 2015 - December Client Letter, A Baker's Dozen: 13 Smart Planning Moves