SECURE Act Repeals Stretch IRAs and Requires You to Revisit Your Estate Plan

By: Melissa Nolan

In December 2019, Congress passed the “Setting Every Community Up For Retirement Enhancement Act” (the “SECURE Act”), which makes a number of changes affecting retirement plans. The most significant of the changes affecting an estate plan is the elimination of the “Stretch IRA.” Under prior law, a designated beneficiary of a retirement plan was allowed to receive distributions over his or her lifetime. As a result, many estate planning documents provide trusts for children or grandchildren, anticipating that distributions the trusts will receive from retirement accounts could be spread out over the lifetimes of those beneficiaries, thereby reducing the tax burden.  An added benefit was that each beneficiary’s access to funds was limited over time for the beneficiary’s protection.

The SECURE Act creates a new category of beneficiaries known as “eligible designated beneficiaries.” These include: 

  • A surviving spouse
  • A minor child (until the child has reached majority)
  • A disabled individual
  • A chronically ill individual, and
  • An individual who is not more than ten years younger than the participant

For these  specific “eligible designated beneficiaries” the law has not changed, allowing these beneficiaries to receive distributions from the IRA or retirement plan over their lifetimes.  For all other designated beneficiaries who are not considered “eligible designated beneficiaries,” the payment period from an inherited IRA or retirement plan may not exceed ten years from the death of the participant, a major change  from the Stretch IRA. 

Another change is that a child is only considered an eligible designated beneficiary while a minor.  The payout for a minor child is ten years from obtaining the age of majority under state law, with an exception for a child who is under the age of 26 and who has not completed a specified course of education.  A “specified course of education” is not defined in the law, and it is not clear yet what this means.    

If the IRA participant’s grandchildren are named as beneficiaries of the IRA or retirement plan (or they would become the beneficiaries because of the death of a parent), they would not fall within the category for minors, and the required payment period for them would be ten years from the death of the participant, regardless of their ages at the time.  

These changes made by the SECURE Act will significantly impact estate planning for retirement benefits. If your estate includes a significant IRA or other retirement plan account, your beneficiary designations and the provisions in your trust for the benefit of children or other descendants should be reviewed to determine the impact of the SECURE Act on your estate planning. The attorneys at Paule, Camazine & Blumenthal, P.C. can help you understand these changes and plan for your future, and the future for your family. 

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Melissa G. Nolan

Melissa G. Nolan

St. Louis attorney Melissa Nolan's practice involves immigration law, as well as estate and tax planning. From helping individual immigrants to ensuring companies' I-9 forms are compliant through audits, Ms. Nolan is dedicated to making sure the laws are followed. Melissa’s estate and tax planning practice includes the preparation of estate planning documents such as wills, revocable trusts, powers of attorney, and health care declarations.