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On December 20th, 2019, President Trump signed into law the SECURE Act (Setting Every Community Up for Retirement Enhancement) which has been described as the most significant change to retirement savings law in the last decade. While the intent of the SECURE Act is to strengthen retirement security across the nation, the new rules for inherited retirement accounts have penalized account owners and beneficiaries. On the other hand, the new starting age for taking required minimum distributions (RMDs) is viewed as a positive.

The SECURE Act all but eliminated the stretch IRA or allowing beneficiaries to distribute inherited IRA assets over their life expectancy. The new law requires those assets to be fully distributed within 10 years. Consequently, account owners and beneficiaries are now faced with potential estate, legacy, and tax planning challenges.

There are some exceptions to the 10-year rule, including existing inherited retirement accounts and beneficiaries such as a spouse or minor. However, the majority of wealthy IRA owners and beneficiaries will be impacted by these changes.

Account owners with estate and legacy concerns may want to consider a Roth IRA conversion or series of conversions to pass down tax-free assets. Under the 10-year rule, there is not an annual distribution requirement, rather the assets just need to be taken out before the end of the 10th year. If the beneficiary does not need the money, they can leave it alone in the inherited Roth for the full 10 years, let it grow and then take it all out tax-free.

Arguably the best change from the SECURE Act is the law raises the age to 72 from 70½ at which individuals must begin to take RMDs from their retirement savings. It is important to note this law only applies to people who turn 70½ after December 31, 2019.

For more information about how the SECURE Act could affect your retirement savings, please contact Peloton Capital Management at dmorrison@pelotonwealth.com or call 317-559-1700.