The SECURE Act: Elimination of the Stretch IRA
Wednesday, January 29, 2020

The "Setting Every Community Up for Retirement Enhancement Act of 2019" ("SECURE Act"), which Congress passed at the end of 2019, included changes that may significantly affect how your retirement accounts fit into your overall estate plan. 

The SECURE Act is effective for distributions relating to the death of a participant in a qualified retirement plan or IRA owner on or after January 1, 2020.  It eliminates the ability of most beneficiaries to receive distributions over the beneficiary's remaining life expectancy – popularly known as "stretch treatment" that optimizes the beneficiary's income tax deferral. 

The SECURE Act's key provisions related to estate planning are as follows:

  • If the owner names an individual (i.e., a beneficiary who qualifies as a "designated beneficiary" ("DB")), then, unless the DB is an "eligible designated beneficiary" ("EDB") described below, the retirement account must be depleted no later than the end of the year that contains the 10th anniversary of the owner's death ("10-year rule").

  • Life expectancy distributions are available only to DBs that qualify as EDBs, narrowly defined as:

    • a surviving spouse;

    • a child of the retirement account owner (until child reaches age of majority);

    • a "disabled" individual;

    • a "chronically ill" individual; or

    • an individual (other than above EDBs) not more than ten years younger.

Estate Planning Considerations / Action Steps

Qualified plan participants and IRA owners should meet with their attorney and other advisors to:

  • Obtain and review all existing primary and contingent retirement account beneficiary designations carefully.

  • Obtain and review any trust (including any revocable trust, any trust for minor or adult children, any family trust, or any marital trust) named as beneficiary of any qualified retirement plan account or IRA, as trust provisions based on prior law may frustrate the owner's intent when applied under current law.

  • Consider income tax consequences of accumulating retirement distributions in trust.

  • Consider using tax-deferred retirement accounts to meet charitable planning goals.

  • Consider strategic conversions of tax-deferred retirement accounts to "after-tax" Roth retirement accounts.

  • Review all special needs trusts and consider the impact of eligible designated beneficiary definitions for "disabled" and "chronically ill" individuals.


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