SECURE Act Makes Drastic Changes in IRA Distribution Options

signing document

Prior to enactment of the SECURE Act on December 20, 2019, the “stretch IRA” was a popular estate planning tool. It allowed a beneficiary to stretch the payout of an IRA over his or her life expectancy, which in turn allowed the benefits to continue to compound tax deferred and to avoid being currently taxed as income. When it was desirable to leave retirement benefits in trust, the terms of the recipient trust often included a “conduit trust provision” to ensure that a stretch would be possible. The basic effect of a conduit trust provision is to push the retirement benefits paid to the trust out to the beneficiary. The SECURE Act eliminates the potential for the stretch for most beneficiaries, requiring that the benefits be paid out within 10 years. Conduit trust provisions may no longer be beneficial in many situations and may in fact be detrimental. If retirement accounts are a significant portion of your assets and/or your estate planning documents create trusts to which retirement benefits could be paid, you should have your estate planning documents and beneficiary designations reviewed to determine if changes should be made in light of the SECURE Act.

For more extensive information about the SECURE Act, please see this in-depth memorandum or contact one of our attorneys.