The SECURE Act 2.0, signed into law in 2022, introduced significant changes to retirement accounts, impacting everything from Required Minimum Distributions (RMDs) to beneficiary inheritance rules. These updates are crucial for individuals planning their estates as they affect how retirement assets are distributed and taxed after death.
As a New York estate lawyer, I often help clients navigate these regulations to ensure their estate plans align with the latest laws. In this blog, we’ll break down the most significant changes, including the 10-year rule, eligible designated beneficiaries (EDBs), and tax implications.
Key Updates from SECURE Act 2.0
- Changes to Required Minimum Distributions (RMDs)
One of the most significant updates under SECURE Act 2.0 is the increase in the RMD age for traditional retirement accounts.
Previously: RMDs started at age 72
Now:
- Age 73 for individuals born between 1951 and 1959
- Age 75 for individuals born in 1960 or later
What This Means: Delaying RMDs allows retirement funds to grow tax-deferred for longer, potentially increasing wealth accumulation. However, this could result in larger taxable distributions later in retirement.
- The 10-Year Rule for Inherited Retirement Accounts
Under the original SECURE Act (2020), most non-spouse beneficiaries must withdraw all inherited retirement funds within 10 years. SECURE Act 2.0 did not change this rule but clarified its application.
Who Must Follow the 10-Year Rule?
Non-Eligible Designated Beneficiaries (NEDBs): Includes adult children, grandchildren, siblings, and most other heirs who do not fall under the “eligible designated beneficiary” category.
These individuals must entirely withdraw inherited IRA funds within 10 years of the account owner’s death, often leading to higher tax burdens.
Exception: Eligible Designated Beneficiaries (EDBs)
Some beneficiaries qualify for more extended withdrawal periods, reducing their tax burden:
Eligible Designated Beneficiaries (EDBs) Include:
- Surviving spouses (can roll over the IRA and stretch distributions)
- Minor children of the account owner (until they reach adulthood, then the 10-year rule applies)
- Chronically ill or disabled individuals
- Beneficiaries less than 10 years younger than the account owner (such as a sibling)
What This Means: If you plan to leave a large retirement account to your children or other heirs, they may face significant tax liabilities due to forced withdrawals within a decade. Estate planning strategies, such as naming a trust or staggering distributions, can help mitigate this impact.
- Roth 401(k) and Roth IRA Changes
SECURE Act 2.0 introduced several changes that benefit Roth account holders:
No More RMDs for Roth 401(k) Accounts (Starting in 2024)
- Previously, Roth 401(k)s were subject to RMDs, unlike Roth IRAs.
- Now, Roth 401(k) owners no longer need to take RMDs, allowing tax-free growth indefinitely.
Employer Matching Contributions to Roth Accounts
- Employers can now offer Roth matching contributions in workplace retirement plans.
- Unlike traditional employer contributions, Roth contributions are taxed upfront but grow tax-free.
What This Means: Roth accounts have become even more powerful estate planning tools. If structured correctly, they allow tax-free withdrawals for heirs.
Estate Planning Strategies Under SECURE Act 2.0
With these rule changes, it’s more important than ever to structure your estate plan effectively. We can help with:
Roth Conversions: Converting traditional retirement accounts to Roth IRAs can reduce the tax burden on heirs.
Trust Planning: Certain see-through trusts can protect assets while complying with the 10-year rule.
Beneficiary Review: Regularly updating beneficiary designations ensures your estate plan aligns with current laws.
Need Help Navigating SECURE Act 2.0?
The SECURE Act 2.0 has reshaped retirement account rules, making it essential to review your estate plan. Whether you’re planning for your future or passing assets to the next generation, ensuring compliance with these new laws can protect your wealth.
Our experienced estate lawyers are here to guide you through these complex regulations. Contact us today for a comprehensive consultation. We will help you understand your options and create a plan that provides security and peace of mind. Be sure to mention this article so we can focus on your specific needs.
This article is a service of Miller & Miller Law Group. We do not just draft documents; we ensure that you make informed and empowered decisions about life and death for yourself and the people you love.
