Protecting assets in light of the new SECURE act

The advent of a new year often means new tax laws that will have an impact on estate planning strategies. January of 2020 was no exception with the enactment of the Setting Every Community Up for Retirement Act, known as the SECURE Act of 2019. The act has implications for the disbursement of funds from certain retirement accounts and may impact plans for protecting assets in California.

Under the prior law, non-spousal beneficiaries of a 401(k) or IRA account could hold on to the account until the beneficiary reached the age when required minimum distributions (RMD) would begin. Under the old law, the RMD age was 70½, and the SECURE Act raises the age to 72. In addition to waiting until only age 70½, a recipient could stretch out disbursements over his or her lifetime under the old law.

Under the SECURE Act, most non-spousal beneficiaries must take full distribution of the 401(k) or IRA account within 10 years of receiving it. This also means that all taxes due on the accounts must be paid within 10 years. The change eliminates what was considered the ‘stretch’ benefit, or the ability to spread distributions over one’s lifetime. There are exceptions to the 10-year rule, including for minor or disabled children.

Protecting assets from excessive taxes is an important component of estate planning in California. Familiarity with the new laws and an understanding of their tax implications are important to making informed decisions regarding one’s estate. Consulting with a knowledgeable estate planning attorney is one way to help ensure that one is making well-informed decisions.

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