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SECURE Act may affect retirement fund estate planning

For many people in Virginia, their retirement funds are an important part of their estate plans. After the original owner of a retirement account passes away, the remainder of the fund generally passes directly to a named beneficiary without going through the probate process. Rather than taking everything in the account at one time, named beneficiaries have, in the past, been able to stretch out the payments from the retirement funds over their own lifetimes. They have been required to take only the minimum necessary distributions, allowing the account to continue to grow while deferring taxation until their own retirement.

However, under the Setting Every Community Up for Retirement Enhancement Act, or the SECURE Act, which went into effect on Jan. 1, 2020, the ability of beneficiaries to stretch out payments over their own lifetimes has been limited. In many cases, beneficiaries must take the full distribution of the account within 10 years after the death of the plan participant. The new restrictions do not apply to all beneficiaries. Surviving spouses named as beneficiaries can still stretch out their payments over their lifetime or roll over their inherited benefits.

When adult children are named as the beneficiaries of a retirement account, in most cases, they must take the full distribution within 10 years. If the beneficiaries named are minor children, the clock will not begin to run on the 10-year term until the minor becomes an adult. Other minors, such as grandchildren, will still need to take the full benefit within 10 years of the participant's death.

Many people also name a trust as the beneficiary of a retirement fund, even if a surviving spouse or child is the main beneficiary of the trust. An estate planning attorney may provide advice on how the SECURE Act could affect decisions about retirement accounts.

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