The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, often simply called the “SECURE Act,” brought significant changes to retirement-account and estate-planning rules. Parents, grandparents, or anyone passing assets such as IRAs or 401(k)s to their descendants should be aware of the implications and how things differ now versus the old rules. In general, the SECURE Act overwhelmingly affects children and other non-spouse heirs, while spouses remain largely protected under the old, more flexible spousal inheritance rights.

Those who are starting to think about estate planning in Houston, Texas, should look into contacting an experienced lawyer at the Law Office of Troy M. Moore, PLLC at (281) 970-8039. Having a seasoned attorney on your side is the most critical component of making sure assets are distributed as efficiently and fairly as possible while also minimizing conflict and potential tax losses.

What the SECURE Act Changed About Estate Planning In Houston, Texas

Here are some of the most obvious things that changed once the SECURE Act was passed.

The end of the traditional “stretch” for non-spouse beneficiaries – Under the pre-SECURE rules, if an individual inherited a retirement plan or an IRA from someone (for example, a parent) who died, they as beneficiary could often take the required minimum distributions (RMDs) over their own life expectancy (or the decedent’s remaining life expectancy) and thereby stretch the tax-advantaged growth over many years. The SECURE Act changed that for most designated beneficiaries if the original account owner died after December 31, 2019. The new rule generally requires the entire inherited account to be distributed by the end of the 10th year after death, unless the beneficiary is in a special category. This is known as the “10-year rule.” As per the Internal Revenue Service (IRS), “All distributions must be made by the end of the 10th year after death” in most cases.

Who it applies to – The IRS says that for deaths in 2020 or later, beneficiaries who are not spouses or otherwise defined as “eligible designated beneficiaries” are subject to the 10-year rule. An “eligible designated beneficiary” includes: the spouse; a minor child of the decedent (until majority); a chronically ill or disabled individual; or someone who is not more than 10 years younger than the original owner. If the beneficiary is not in one of those special categories, they now face a compressed timeline for the withdrawal of inherited retirement assets under SECURE.

Changes in required beginning date for the original owner’s RMDs – Separately, the Act (and later subsequent legislation) raised the age at which the original retirement-account owner must begin RMDs for their own accounts. For example, the IRA RMD age moved from 70½ to 72 under SECURE, and later, with the SECURE 2.0 Act, it will move higher for certain individuals.

Consider speaking with a skilled Texas estate planning attorney with the Law Office of Troy M. Moore, PLLC today to learn more.

What It Means For Passing On Assets To Children Vs Spouses

For people who are contemplating leaving retirement-account assets like IRAs or 401(k)s to their children or other non-spouse heirs, they must be aware of some major implications. Because of the 10-year rule for most non-spouse beneficiaries, a child may have to withdraw the full inherited amount relatively quickly, or within ten years of the estate owner’s death. This ostensibly means less opportunity for decades of tax-deferred growth and potentially a higher tax burden in the shorter period. If the person’s child is in that non-spouse beneficiary category, they won’t have the old option of “life‐expectancy distributions” (a stretch), which changes the planning process. The estate owner may want to revisit how they designate beneficiaries on retirement accounts and consider whether leaving funds to children directly (versus via trusts) is still optimal under the new regime.

For spouses, the rules remain more flexible: a surviving spouse may have more options, such as treating the inherited account as their own, or rolling it into their own IRA in some cases. For trusts used in estate planning (for example, someone leaves their IRA to a trust for children), the SECURE Act means they must check the design of the trust carefully. If the trust is treated as a “designated beneficiary,” the 10-year rule may still apply, and the trust drafting may work differently than under the old “stretch” assumptions. Because the timeline is compressed, tax and cash-flow planning become increasingly important. Heirs might face larger annual required withdrawals (and taxes) than they would have under the older life-expectancy model. In short, under the Secure Act, when a spouse inherits an IRA or 401(k), they are usually not required to distribute the entire account within 10 years. Instead, they have several choices for how to manage it, depending on their own age and goals.

The Key Takeaways For Estate Planning After The Secure Act

For those who are now planning to leave behind an estate under the Secure Act, time will increasingly become an important factor. Retirement accounts, IRAs, and other assets, as well as the exact beneficiary designations, should be reviewed now. An experienced firm with a background in Texas estate planning, like the Law Office of Troy M. Moore, PLLC, can advise on whether naming children directly or using a trust (with the new rules in mind) makes sense for the goals of the estate. Whether or not it makes sense to convert retirement assets to Roth accounts should also be considered, as Roths may offer more favorable treatment, depending on the situation. The tax consequences for child beneficiaries must be thoroughly examined, given that the new 10-year rule means they may have to withdraw and pay income tax in a shorter time span. For spouses, options for inherited accounts should be explored.

The Secure Act has changed the landscape for estate planning, so wills, trusts, and retirement accounts should absolutely be adjusted in light of its impact. For anyone looking to tie up loose ends and to ensure a well-executed distribution of their estate, the Law Office of Troy M. Moore, PLLC at (281) 970-8039 is here to help.