Are you feeling SECURE about retirement?
In the past 5 years, there have been some major changes in planning for retirement. These changes impact not only how you save for retirement but how your estate plan should address retirement accounts. In particular, two major laws that affect your retirement planning:
- SECURE Act (2019): “Setting Every Community Up for Retirement Enhancement.” This act made significant changes to how retirement accounts are treated, especially when inherited.
- SECURE 2.0 (enacted in late 2022): This act builds on SECURE, adding new rules to further adjust required minimum distributions, contributions, charitable giving, etc.
The above laws have resulted in significant changes that affect estate planning. A few important changes to watch out for:
Required Minimum Distributions (RMDs)
What changed? The age to begin RMDs from traditional IRAs / 401(k)s has increased. Prior to 2020, it was 70½; it is now 73 (as of 2023) and will be 75 in 2033. Further, penalties for missing RMDs were reduced from 50% of the shortfall to 25% of the shortfall, and if corrected in time, to 10%.
Implications for planning: Because of the increased time to let retirement assets grow before required withdrawals, planning for income during retirement must account for delayed RMDs Further, this delay means that beneficiaries may inherit larger amounts.
Inherited IRAs & the “10‑Year Rule”
What changed? The SECURE Act largely eliminated the “stretch IRA” for non-spouse beneficiaries, most of whom must withdraw the full account balance within 10 years of the account owner’s death. Some special classes of “eligible designated beneficiaries”, e.g., minor children, persons who are disabled or chronically ill, and spouses have more favorable or different rules.
Implications for planning: This change means significant tax hits in some cases if large IRA balances are inherited. Having to withdraw inherited IRA balances quickly could push beneficiaries into higher tax brackets. Planning techniques like Roth conversions before death, or structuring trusts or beneficiaries to take advantage of exceptions or disclaimers, have become more important. Further, trusts drafted under the old rules (expecting stretch distributions) may now produce unintended consequences and should be reviewed for possible changes.
Roth Accounts Changes
What changed? Roth 401(k)s are exempt from RMDs for the account holders starting in 2024, aligning them with IRAs.
Implications for planning: Roth accounts have become even more powerful legacy tools, due to tax-free growth and less forced distributions. For high earners, a greater percentage of retirement savings may need to be in Roth form. Beneficiaries are likely to prefer Roth distributions (no tax at withdrawal), so this may affect how you allocate your taxable, tax-deferred, and Roth assets.
Catch-Up Contributions & Other Savings Enhancements
What changed? Individuals aged 60‑63 have larger catch-up contribution limits beginning in 2025 for employer plans; the increased limit is $11,250 up from the standard $7,500. For some higher earners, catch-up contributions must be Roth contributions. Further, employers can match retirement plan contributions based on employee student loan payments, and some plans will offer new emergency savings, linked to Roth contributions.
Implications for planning: For those in later working years, there is an opportunity to accelerate retirement savings, which can improve what you can leave to your beneficiaries. It is important to understand which contributions are after-tax vs pre-tax because this impacts the taxable base of your estate, income in retirement, and burden to those inheriting. You or other family members may be able to take advantage of employer plans offering additional tools for savings.
Charitable Giving and 529 Plan Changes
What changed? Qualified Charitable Distributions (QCDs) offer increased flexibility, a one-time $50,000 via certain charitable trusts or gift annuities, and limits indexed for inflation. Unused funds in a 529 savings plan that has been open at least 15 years can be rolled over into a Roth IRA (up to a lifetime limit of $35,000).
Implications for planning: The change concerning 529 plans can reduce the waste of unused 529 funds and turn them into retirement/Roth savings. This can be especially important if there are no other beneficiaries to whom these funds can be directed. Wise charitable giving using Qualified Charitable Distributions or charitable trusts continues to be a tool to reduce one’s taxable estate and provide for causes you care about. It is important to coordinate this planning with other estate plan tools such as trusts to ensure beneficiaries understand how assets are to be used.
Trusts as Beneficiaries
What changed? Trusts that were designed under the old “stretch IRA” expectations may no longer align with current laws. These laws clarify various details around which types of trusts still qualify under favorable categories, such as those for spouses and chronically ill or disabled beneficiaries. The laws impacting trusts as beneficiaries of retirement accounts continue to be clarified.
Implications for planning: Trust documents may need updating to ensure they still achieve intended tax & distribution outcomes. Family and estate distribution goals such as protecting assets from creditors and divorce and providing for minors should be reviewed in light of the new distribution rules and recent clarifications by the Treasury.
In Summary. Given the changes made by the SECURE Acts, here are a few steps to ensure your estate plan remains effective:
- Review Beneficiary Designations. Make sure the named beneficiaries for retirement accounts (IRAs, 401(k)s, etc.) are accurate. If trusts are beneficiaries, check the trust type and its language with your attorney.
- Consider Roth vs Traditional Conversion.
Because your beneficiaries benefit more from Roth (tax‐free withdrawals), converting some tax‐deferred retirement assets to Roth during your lifetime may reduce tax burdens later (while being mindful that this has its own costs now). - Update Trusts Created Before These Acts.
Many trusts were set up with the now‐largely extinct “stretch IRA” in mind. These trusts may produce suboptimal or unintended tax results under the current law. - Plan for Tax Timing.
With required distributions being delayed, there may be opportunities to manage when income is recognized, perhaps in lower income years. Also, be sure to plan for the “10‐year” forced withdrawal for non‐spouse beneficiaries. - Use Charitable and 529‐Plan Tools Where Appropriate.
For clients with charitable goals, QCDs and charitable remainder trusts remain useful. For clients with 529 plans that might have leftover balances, the rollover to a Roth IRA (if conditions are met) is a helpful new option. - Coordinate Among Advisors.
The overlap between tax, retirement, and legal (trust/estate) planning is strong. Your estate planning attorney, financial planner, and CPA should be on the same page about how these laws affect your overall plan. - Keep an Eye on Future Changes.
Some of the changes under SECURE 2.0 phase in over time (e.g., RMD age rising to 75 in 2033). Also, inflation indexing means dollar amounts will shift.
