SECURE Act 2.0 & Beneficiary Strategies

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By James Lange, CPA

Editor’s note: This article received a lot of attention not only when it was first published in September 2020, but continues to receive many views. Now, after the House voted to approve the proposed settlement known as SECURE Act 2.0 on March 29, 2022, readers want to know if they need to change their estate plan.

We asked the article’s author, James Lange, to embed the proposed update to the regulations in his older article so that you can benefit from the original article as well as recent updates.


Most traditional estate plans take a set-and-forget approach that ignores changing circumstances. There will likely be significant changes between the time you draft your wills, trusts, and beneficiary designations for IRAs and retirement plans and the time of your death. Changes could take the form of changes in portfolio and/or circumstances of different family members. In addition, there could be changes in tax legislation such as those brought about by the SECURE law and reinforced by the proposed new regulations. There is a much better alternative estate plan for most married couples.

The SECURE Act, followed by the House vote on proposed SECURE Act 2.0 regulations, dramatically changed the laws governing inherited IRAs and retirement plans. Many traditional estate plans take a set-and-forget approach that ignores changing circumstances.

Most married IRA owners have “I love you” wills. They usually name their surviving spouse as the primary beneficiary and then their children in equal shares as contingent beneficiaries. Hope the name of the documents trust the grandchildren of deceased children. Under this arrangement, children generally receive no money until the husband and wife die, and grandchildren receive nothing unless their parents predecease their grandparents.

Using disclaimers to benefit your heirs

It is possible to add flexibility to traditional wills, trusts, and IRA and pension plan beneficiary designations, through the use of “disclaimers.” A disclaimer allows your designated beneficiary to say, “I don’t want this money – give it to the next person in line.” When you include disclaimers, your surviving spouse has up to nine months after your death to determine how much to keep and how much to pass on to your children. Your children would also have the ability to waive well-drafted trusts for the benefit of their own children.

The most drastic consequence of the SECURE Act is its impact on inherited IRAs. Subject to certain exceptions, a non-spouse beneficiary of a traditional inherited IRA must withdraw and pay taxes on that inherited IRA within 10 years of the death of the IRA owner – this is in stark contrast to the old “expandable” rules that allowed distributions to continue over a lifetime.

To add to the misery of IRA beneficiaries, the proposed SECURE Act 2.0 regulations were overwhelmingly approved by the House of Representatives on March 29, 2022. If these proposed regulations become law, which I think is very likely, beneficiaries of IRAs and retirement accounts that have inherited the IRA or owners of retirement accounts that are already receiving Required Minimum Distributions (RMDs) will be required to take annual distributions during the first nine years immediately following the year the IRA owner dies, then will be obligated to take a lump-sum distribution for the retirement account balance in the last distribution year.

We were hoping that at least the beneficiaries could plan their taxable distributions anytime within ten years of the death of the IRA owner. These proposed new regulations will apply to traditional IRAs and retirement accounts, but not to Roth IRAs, because Roth IRAs do not have a required minimum distribution for the original IRA owner or the spouse of the original Roth owner. IRA.

A surviving spouse, along with a few other exceptions, is not subject to the 10-year rule. The fact that the surviving spouse has the potential to defer distributions for a much longer period than to a non-spouse beneficiary, most likely your children or grandchildren, is a tax deterrent to leaving IRA dollars to a child. or a grandchild. Under the old law for IRA owners who died before January 1, 2020, there was a big incentive to leave IRA dollars to young beneficiaries who under the old law might have had taxable distributions. “stretched” or partially deferred from the IRA inherited during their lifetime.

But, given some hard-to-predict circumstances, there is an incentive to give up after-tax or non-IRA dollars. There can be compelling reasons for who should get anything – whether it’s an IRA, a Roth IRA, a brokerage account, life insurance, an annuity, a home or other assets – upon your death and the death of your spouse, which you cannot accurately predict today.

If your estate planning documents “set in stone” the distribution of all your assets to your heirs, they are unlikely to benefit fully from your inheritance. Better decisions will be made when the circumstances are current and clear. Also, if your estate planning documents are written with disclaimers like Lange’s cascading beneficiary plan (the name of the plan I created for my clients at Lange Financial Group), the take window nine-month decision-making allows time to think through options and determine the best strategies for the whole family.

Suppose you die with more money than your surviving spouse needs, but your children have current needs. Under the proposed flexible estate plan, the surviving spouse could “give up” some of the IRA or after-tax dollars to the children.

Under the old law, it would have been better to forfeit the IRA money so that the children could have stretched or deferred distributions over their lifetime. Under the new law, it would be better to give up after-tax dollars to children so that the surviving spouse can take advantage of the favorable rules allowing surviving spouses to transfer their spouse’s IRA into theirs.

With waiver planning, your surviving spouse can make informed tax decisions with the help of their family or, ideally, with their family. and a trusted advisor who understands the benefits of writing flexible estate documents as well as the benefits of post-mortem (after death) planning.

About the Author: James Lange

James Lange, CPA, lawyer and Registered Investment Advisor, is a nationally recognized expert in IRAs, Roth IRAs, 401(k) and pension plan distribution. Lange is the author of Beating the New Death Tax. For more information, visit www.PayTaxesLater.com.

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