The New SECURE Act Dramatically Impacts Planning for Most Clients’ Retirement Benefits

     On December 20, 2019, the President signed into law the “Setting Every Community Up for Retirement Enhancement Act” (the “Act”), which radically changed the estate planning landscape for retirement benefits.[1]  This alert will provide a brief overview of the Act provisions affecting estate planning, address how these changes impact the owners and beneficiaries of retirement accounts, and outline steps you should take to ensure your estate planning goals are achieved under the new law.


Increase of Required Beginning Date for Mandatory Distributions to Age 72

     The Act increased the age at which owners must begin taking required minimum distributions (RMDs) from a retirement account from the year in which the owner attains age 70 ½ to the year in which the owner attains age 72, extending the period by 18 months.  Under both the old and new law, withdrawal of the first RMD may be delayed until April 1st of the following year.  An owner of a Roth IRA, however, still is not required to take RMDs during the owner’s lifetime.

     The Act does not apply to an owner who attained age 70 ½ in 2019.  He or she must still withdraw the first RMD by April 1, 2020.  The new rules apply to younger owners who must take the first RMD by April 1st of the year following the year in which the owner reaches age 72 (the earliest date is April 1, 2022).

     While an owner is permitted to delay withdrawal of the first RMD until April 1st of the following year, subsequent RMDs must be withdrawn by December 31st each year.  Therefore, an owner who decides to withdraw the first RMD in the following year must also withdraw the second RMD in the same tax year, potentially pushing the owner into a higher tax bracket.

Repeal of Maximum Age for Traditional IRA Contributions

     Under prior law, an individual was prohibited from contributing to a traditional IRA after age 70 ½.  Because Americans are working later in life, the Act repeals this age restriction, thereby permitting individuals over 70 ½ with earned income to contribute to traditional IRAs.

Substantial Modifications to Post-Death RMD Rules

     The post-death payout requirements for retirement accounts traditionally have been dependent upon whether (1) the owner died before or after his or her required beginning date and (2) whether the person inheriting the deceased owner’s retirement accounts qualified as a “designated beneficiary.”  Generally, a designated beneficiary is simply any individual.  However, a trust may be a designated beneficiary if it qualifies as a “see-through” trust.

     Under prior law, if an owner died prior to his or her required beginning date and did not name a designated beneficiary, the retirement account was required to be withdrawn by December 31st of the fifth year following the owner’s death (the “5 Year Rule”).  If an owner died on or after his or her required beginning date and did not name a designated beneficiary, the retirement account was required to be withdrawn over the owner’s remaining life expectancy.  However, regardless of the owner’s date of death, if he or she named a designated beneficiary, that individual could elect to withdraw distributions over his or her life expectancy.  Also, if that designated beneficiary was the owner’s spouse, he or she could roll over the retirement account into his or her own retirement account.  In the case of an owner dying before the required beginning date, the spouse could also delay the start of distributions until the deceased owner would have reached age 70 ½.

     The Act does not change the post-death distribution rules for a beneficiary who is not a designated beneficiary, such as the decedent’s estate, a charity or a trust that does not qualify as a “see-through” trust.  Accordingly, the 5 Year Rule or the deceased owner’s remaining life expectancy rule will continue to be the two available methods of distribution if there is not a designated beneficiary.

     The Act, however, significantly changes the RMD rules for post-death distributions to designated beneficiaries.  Specifically, a designated beneficiary cannot “stretch-out” distributions over his or her life expectancy unless he or she is also an “eligible designated beneficiary” (hereinafter, EDB).  In lieu of the life expectancy payout, designated beneficiaries who are not also EDBs must withdraw benefits by December 31st of the tenth year following the owner’s death (the “Ten Year Rule”), regardless of whether the owner had attained his or her required beginning date.  Notably, there is no requirement under the Ten Year Rule that the designated beneficiary withdraw any benefits during the first nine years.  Thus, the designated beneficiary could retain all benefits within the retirement account until December 31 of year ten.

     EDBs are defined as (1) the surviving spouse, (2) a minor child of the owner, (3) a disabled beneficiary, (4) a chronically ill beneficiary, and (5) a beneficiary who is not more than ten years younger than the owner.  An EDB may elect to withdraw the balance of the retirement account over his or her life expectancy.  However, a minor child may only use the life expectancy payout method until the age of majority (i.e., 18 or 21) or until age 26 for children who have not completed a specified course of education.  Once the child reaches majority, the retirement account must be withdrawn under the Ten Year Rule.

Death of a Designated Beneficiary

     The new post-death distribution rules under the Act apply in the event the owner dies on or after January 1, 2020.  However, it is important to recognize that the Ten Year Rule can also apply to retirement accounts inherited prior to 2020.  Prior to the Act, a successor beneficiary who became entitled to the balance of an inherited retirement account upon the death of the designated beneficiary could continue taking RMDs over the designated beneficiary’s remaining life expectancy.  The Act appears to now require a successor beneficiary who becomes entitled to an inherited retirement account upon the death of a designated beneficiary to withdraw the remaining assets in the inherited retirement account under the Ten Year Rule.  The changes made by the Act are not entirely clear on this issue, but further guidance should be forthcoming. 

Qualified Charitable Distributions

     The Act generally retains the ability for an owner to donate up to $100,000 per year directly from a retirement account to charity once the owner has reached age 70 ½.  These “qualified charitable distributions” ensure that an owner effectively receives a full charitable deduction for the donation because the qualified charitable distribution amount is not included in the owner’s taxable income.  Due to the increase in the age for starting RMDs under the Act, however, the qualified charitable distribution will not be counted towards the owner’s RMD unless the owner has reached age 72 (rather than 70 ½ as was the case under prior law).  The Act also provides for a reduction in the $100,000 annual limit by the amount of any deductible contributions made to an IRA after the owner has reached age 70 ½.

Impact on Retirement Planning

Trust as Beneficiary

     Many clients who work with us have designated trusts as the beneficiary of their retirement accounts for various reasons.  Generally, these trusts are see-through trusts, namely “conduit trusts” or “accumulation trusts,” that qualify as designated beneficiaries.

     A conduit trust is an irrevocable trust that requires all retirement account distributions to be immediately passed outright to the individual trust beneficiary.  Prior to the Act, the trustee of a conduit trust typically would elect to stretch-out the distributions from the retirement account over the life expectancy of the trust beneficiary, resulting in the beneficiary only receiving the RMDs each year.  If the beneficiary had a long life expectancy, the RMDs were often small and the obligation to pass them outright to the beneficiary was not a material concern.  Under the Act, a conduit trust is subject to the Ten Year Rule, unless the trust beneficiary is an EDB.  This could result in a large, unanticipated distribution to the trust beneficiary who is not an EDB. 

     An accumulation trust is an irrevocable trust that only has identifiable individuals as beneficiaries and permits the trustee to accumulate distributions taken from the retirement account.  Prior to the Act, the trustee could take RMDs over the life expectancy of the oldest trust beneficiary and pay those amounts to the beneficiaries at some point in the future in accordance with the general trust terms.  Accumulation trusts have been utilized less often in practice than conduit trusts because of drafting complexities and limitations on the class of permissible trust beneficiaries.  Under the Act, an accumulation trust is generally subject to the Ten Year Rule regardless of whether the trust beneficiaries are all EDBs, except the life expectancy of an EDB who is disabled or chronically ill can be used if the accumulation trust is for his or her sole benefit.  The benefit of accumulating retirement account distributions in trust is that they can receive the same creditor, divorce and transfer tax protections as other trust assets.  Permitting the accumulation of retirement account proceeds also gives the trustee the flexibility to distribute the proceeds among multiple beneficiaries in a tax-efficient manner.  Therefore, the Act is likely to make accumulation trusts the preferred vehicle for the distribution of retirement accounts for the benefit of descendants.

Spousal Beneficiaries

     The distribution rules for retirement accounts payable to or for the benefit of the owner’s surviving spouse remain largely unchanged because the surviving spouse falls into the favored class of EDBs.  Therefore, if the owner’s surviving spouse is the direct beneficiary of the retirement account, he or she still has the same opportunity to roll over the retirement account to his or her own retirement account.  Generally, the rollover will be more beneficial unless the surviving spouse is older than the owner or the surviving spouse is under the age of 59½ and needs to begin taking current withdrawals.

     If the surviving spouse is the beneficiary of a marital trust that qualifies as a conduit trust, the surviving spouse will be considered the direct beneficiary of the retirement account that is payable to the marital trust.  Thus, a conduit marital trust allows the surviving spouse to receive RMDs over his or her life expectancy.  Also, the surviving spouse can defer taking RMDs until the end of the year in which the owner would have turned age 72.  Upon the surviving spouse’s death, the Ten Year Rule applies unless the successor beneficiary also is an EDB.

     A marital trust that does not specifically provide for the RMDs to pass out to the surviving spouse will not qualify as a conduit marital trust. The trust may, however, qualify as an accumulation trust.  In that event, the Ten Year Rule would apply unless the surviving spouse is disabled or chronically ill, in which case the life expectancy method can be used.  The RMDs could be deferred for up to 10 years, but the entire balance in the retirement account would have to be withdrawn by December 31 of the 10th year following the death of the owner.  Therefore, for retirement accounts left to a marital trust, it is critical that the marital trust qualify as a conduit trust by providing for the distribution of the greater of all income of the trust or the RMDs of the retirement account if the goal is to receive the extended life expectancy payout for the owner’s surviving spouse and the surviving spouse is not disabled or chronically ill.

Charities and Individual Beneficiaries

     The Act does not impact those owners who have designated only charities as the beneficiaries of their retirement accounts.  Charities tend to be a popular choice to receive retirement accounts upon the death of an owner because (1) charities do not pay income tax on distributions received from a retirement account (as opposed to non-charitable beneficiaries who generally pay income tax on distributions received in excess of the account owner’s basis, if any), and (2) owners receive an estate tax charitable deduction for the full value of the account passing to charity.  Therefore, designating a charity as the beneficiary of a retirement account will continue to be a tax-favored planning strategy for those with charitable goals.

     The Act will, however, have an impact on owners who have named individuals as the beneficiaries of their retirement accounts.  As mentioned above, an individual beneficiary under prior law could stretch out distributions over the individual’s life expectancy calculated under the IRS tables.  Thus, it was not uncommon for account owners to consider an individual’s life expectancy when choosing a beneficiary.  For example, some clients may have designated a grandchild as their beneficiary in lieu of a child to extend the distribution period over the grandchild’s longer life expectancy.  Under the Act, all individual beneficiaries (other than the EDBs) will be required to withdraw the entire retirement account under the Ten Year Rule.  Notably, this means that a grandchild will have the same, or even potentially shorter, distribution period than a child who has not reached the age of majority unless the grandchild is disabled or chronically ill.

Roth Conversions

     The impact of the Act on Roth conversions is not entirely clear at this point.  From one perspective, the implementation of the Ten Year-Rule for most beneficiaries in lieu of the life expectancy method generally means that post-death distributions from a taxable retirement account will, at least in some years, be larger than under prior law, thereby potentially subjecting the proceeds to a higher income tax rate.  In addition, there will be less years for a beneficiary to accumulate earnings on a tax-deferred basis within the inherited retirement account.  Thus, it may make sense for an owner to convert a traditional IRA to a Roth IRA prior to death if the beneficiary is expected to be in a high income tax bracket.  On the other hand, the reduction in the post-death deferral period reduces the period that the Roth account can grow tax-free, which is an important factor in financial projections for Roth conversions.  Owners who are considering Roth conversions or are in the midst of a Roth conversion strategy should have new illustrations prepared.      

What You Should Do Next

     Here are steps you should take to ensure that your estate plan is up-to-date for the Act:

  1. Review the beneficiary designations for all of your retirement accounts to consider whether the reduction in the distribution period applicable to inherited retirement accounts impacts your decision on who you want to name as the primary or contingent beneficiary.
  2. If you have designated a trust as the primary or contingent beneficiary of a retirement account, you should have the trust reviewed by an attorney. Even though the designated trust may have qualified under prior law as a conduit trust or accumulation trust, the specific language used by the drafting attorney for the conduit or accumulation trust provisions may yield unintended consequences as a result of the changes made by the Act.
  3. If you have any concerns about an individual beneficiary receiving your retirement account within ten years after your death, consider asking your attorney to replace any conduit trust provisions with accumulation trust provisions to defer the distribution of retirement account assets from the trust.

     The Act represents a landmark shift in the rules governing the post-death distribution of retirement accounts.  The changes are complex and the legislation leaves several questions unanswered that will require formal guidance from the IRS or Congress.  We are available to assist you in making any necessary updates to your estate planning documents.  We will also be posting further analysis of the Act on our firm blog, which you can access at

     If you have questions regarding the Act or would like to discuss the impact of it on your particular estate plan with your attorney at Dean Mead, please contact our department paralegal, Sarah Lovelace, at or 407-428-5160 to schedule a call or meeting with your attorney.

[1] The provisions of the Act discussed in this client alert most commonly apply to defined contribution plans such as 401(k) Plans and individual retirement accounts (“IRAs”), which are referred to collectively as “retirement accounts.”  Also, participants in 401(k) Plans and owners of IRAs are referred to collectively as “owners.”