Important Update: SECURE Act 2019

The SECURE Act was passed yesterday as part of the House Appropriations Bill, making sweeping changes to how qualified plans are paid out after the death of the original owner. Hook Law Center originally reported on this issue on May 28, 2019, analyzing the potential end of the stretch IRA. At that time there were differences between the House and Senate version of the bill which had to be reconciled before the bill, which would change how IRAs and other qualified plans could be paid out after the death of the original owner, became law. After several months and reconciliation, a modified version of the House bill passed.

The SECURE Act now allows continued tax deferrals for spouses, minor children, persons with disabilities, and certain trusts created for the sole benefit of persons with disabilities. Any other beneficiaries must withdraw the funds from the qualified plan within 10 years after the date of the original owner’s death.

Prior to the passing of the SECURE Act, with careful planning, tax deferred funds could be passed to subsequent beneficiaries and paid out over the lifetime of the beneficiary, thus allowing the assets to grow tax free and minimizing the amount the beneficiary was required to take annually, therefore reducing income taxes. Now, absent one of the exceptions, tax deferred funds will be subject to continued tax deferral for a maximum of 10 years, thus greatly accelerating the time frame in which taxes must be paid.

Guidance as to how some of the provisions of the new SECURE Act will need to be provided in the form of regulations and many details remain unclear. However, it is clear that many estate and financial plans involving qualified retirement funds will need to be reviewed and revised to take into account the changes in the law.