The SECURE Law hasn’t gotten too much coverage but it took effect January 1, 2020. The main thrust of the law is to increase American retirement savings, but there’s one provision that seems intended to increase income tax revenues and it could have a big impact on your estate planning.

Read more about the new SECURE Law from Fidelity

The provision in question applies to non-spouse inherited IRA’s (including Roth’s). If you already have inherited IRAs, don’t worry, this only applies to IRA’s inherited from January 1, 2020 going forward. Until now, an IRA that was inherited could be rolled over as an inherited IRA, preserving tax-deferred status, with required minimum distributions (RMD’s) paying out based on the beneficiary’s life expectancy. This effectively spreads out distributions from the IRA over many years and minimizes income tax on the distributions.

The new law no longer allows inherited IRA’s to use the beneficiary’s life expectancy but must be paid out within 10 years. There are a couple of exceptions to the new rule, spousal beneficiaries are exempt, minor beneficiaries are exempt until they reach 18, and disabled beneficiaries are exempt.

This law is going to affect those of you with large IRA accounts who likely won’t drain them in retirement but intend to pass them on to your non-spouse heirs. Now those heirs will be forced to liquidate those assets within 10 years which (depending on the size of the IRA account) could increase their income tax bill. However, this also has implications for those of you who have used trusts as the beneficiaries of IRA’s. The new law could exponentially increase the tax consequences of designating a trust as the beneficiary of an IRA, making it less desirable.

The SECURE Law: So what’s next?

First and foremost, we suggest speaking to your financial advisor about the implications of the SECURE Act and whether they recommend any adjustments to your holdings or financial strategy. Second, of course, we recommend reaching out to our office and reviewing your plan, including beneficiary designations, to ensure you understand the impact this Act will have on your existing plan and whether there are any alternative options to discuss.

As with anything, this is a broad simplified overview of a complicated new law with several exceptions and the best way to check exactly how it applies to you is to reach out to your financial advisor and check in with our office.