What the SECURE Act 2.0 Means for Retirement Assets & Your Estate Plan

The Updated Legislation May Raise New Issues for Your Estate Plan. Here’s How.

The SECURE Act 2.0 may have advanced retirement planning in several ways while simultaneously creating new wrinkles and potential disruptions in existing estate plans. From minimum distributions to mandatory withdrawals, the rules for retirement accounts have changed with the SECURE Act 2.0. 

Find out what it all means for you and your estate plan by getting up to speed with: 

To see the full text of the SECURE Act 2.0, click here. If you need confidential answers related to your situation, simply contact a trusted Austin estate planning attorney at TAW Law Texas (also known as the Law Office of Todd A. Wilson). 

How the SECURE Act 2.0 Builds on the Original SECURE Act

On December 29, 2022, President Biden signed the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE Act 2.0) into law. This statute updated its predecessor, the SECURE Act passed in 2020, adding new definitions, clarifications, and provisions to the existing law. 

With the original legislation, the SECURE Act set terms regarding:

• When required minimum distributions (RMDs) start: The SECURE Act pushed out the required beginning date (RBD) for RMDs from individual retirement accounts, raising it from from 70 ½ to 72 years old.
  
• Contribution-related age restrictions: These were eliminated for contributions to qualified retirement accounts.
  
• Required withdrawals: The SECURE Act required most designated beneficiaries to withdraw the entire balance of an inherited retirement account within 10 years of the account owner’s death. If a beneficiary is not considered a designated beneficiary, as in the case of a charity or another estate, the distributions must be taken by the fifth year following the account owner’s death [See Treas. Reg. §§ 1.401(a)(9)-3, Q&A (4)(a)(2), (a)(9)-5, Q&A (5)(b)].

Notably, the SECURE Act provided a few exceptions to the mandatory 10-year withdrawal rule for certain designated beneficiaries, including: 

• Spouses
  
• Minor children (kids under the age of 18)
  
• Disabled individuals and chronically ill individuals
  
• Beneficiaries who are no more than 10 years younger than the account owner 

How the SECURE Act 2.0 Enhanced Previous Legislation 

The SECURE Act 2.0 enhanced the SECURE Act in several key areas, including by: 

• Raising the RMD Age: In 2023, the age for RMDs increased to 73. By 2033, the RMD age will increase again, rising to 75 years old.
  
• Allowing certain early distributions: Early distributions are permitted for long-term care contracts without penalty.
  
• Permitting some charities to be “remainder beneficiaries”: Qualified charities can now be named as remainder beneficiaries after the death of a disabled or chronically ill beneficiary without disqualifying the trust as a see-through trust.
  
• Updating contribution match allowances: Plan sponsors may match contributions made on student loan repayments on the same vesting schedule as elective deferrals, effective 2024.
  
• Opening up the chance for new rollovers: 529 plans maintained for at least 15 years may be rolled over into a Roth IRA with a $35,000 lifetime limit, effective 2024. 

The SECURE Act 2.0 & Your Estate Plan

While the SECURE Act 2.0 (and its predecessor) may affect your plans for retirement income, it could also interfere with your estate plan, impacting assets and beneficiaries in unexpected ways. In fact:

• Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy.
  
• Under both the SECURE Act and SECURE Act 2.0, the shorter 10-year time frame for taking distributions will accelerate the income tax due. That could bump your beneficiaries into a higher income tax bracket. If that occurs, your beneficiaries could end up receiving less of the retirement account funds than you may have originally anticipated. It’s crucial to point out that eligible designated beneficiaries exempt from the 10-year rule may still benefit from more retirement plan growth.

Those are just some reasons why it’s imperative to carefully review and properly analyze:

• Your current estate planning documents
  
• Your estate planning goals and strategies
  
• Your intended beneficiaries’ circumstances

Beyond tax considerations, you may also want to protect a beneficiary’s inheritance from their creditors, future lawsuits, and/or a divorcing spouse. Balancing those and other concerns in light of the SECURE Act 2.0 can help you ensure your estate plan truly aligns with your goals. 

What to Do in Response to the SECURE Act & SECURE 2.0 

To protect your hard-earned retirement account and your loved ones, it is critical to act now. At TAW Law Texas, our Austin estate planning attorneys suggest taking the following steps when reviewing retirement accounts in the wake of the legislative changes:

• Review your trusts: Now could be a good time to go over and possibly amend revocable living trusts or standalone retirement trusts.
  
• Consider additional trusts: Depending on your needs, circumstances, and objectives, you may benefit from setting up a new trust, like a standalone retirement trust, a special needs or supplemental needs trust, or a charitable remainder trust.
  
• Review beneficiaries: Go over your designated beneficiaries, as well as the assets and the distributions you have planned for them. While you may still want the same beneficiaries included in your estate plan, it could be time to establish additional devices or strategies that are specifically designed around your beneficiaries and their needs.

Remember, you don’t have to review trusts, will documents, and estate plans alone. Contact an experienced Austin estate planning lawyer at TAW Law Texas for help, answers, and support. We are ready to explain more about how your estate plan and retirement accounts may be impacted by the SECURE Act and SECURE 2.0.

Todd A. Wilson

Todd A. Wilson has been practicing law since 2007, with the aim of educating all strata of society and sharing crucial insights about the importance of estate planning, probate, and more.

The Law Office of Todd A. Wilson (also known as TAW Law TX) offers affordable estate planning and probate services.