We recently sent out a client survey about the new 2020 SECURE Act legislation that took effect on New Year’s Day. Thank you for all of your feedback - it was helpful to get feedback on our clients’ situations so that we can be responsive to your needs.

Here are some points that came up often as we reviewed your responses, please a take a look at the questions below and see if they apply to you. If so, we have some options you might consider.

Tax implications for adult children

If your adult children inherit your retirement accounts, they will no longer be able to take distributions over their lifetime. Instead, they will have to withdraw the entire amount with in a ten-year time frame. This could cause your beneficiaries to be bumped into a higher income tax bracket, thus receiving less of the funds in the retirement account than you may have originally anticipated.

Questions to consider:

If your adult children inherit a large portion of your retirement assets over the new ten-year timeline, how will that affect their tax bracket?
If your adult children inherit a large portion of your retirement assets quickly, do they need guidance on what to do with that money? Do you want to try to put restrictions on that money?

Your options:

To mitigate taxes on inheritance, you could consider a charitable remainder trust.
If you are concerned about protecting your children’s inheritance from creditors and potential divorce, you can look into an irrevocable life insurance trust.
A multi-generational spray trust or multiple trusts could distribute the tax burden to grandchildren, as well as children.
If you are are currently in a lower tax bracket than your children, you could do a ROTH conversion on a portion of your assets to take care of taxes now.

Another change we want our clients to know about is that required distributions from your retirement accounts now start at age 72, not 70½. It also eliminates the age restriction for contributions to qualified retirement accounts, so you may continue funding your accounts for as long as you want.

We encourage you to contact our office to schedule an appointment to discuss how your estate plan and retirement accounts might be impacted by the SECURE Act.