Creating a Houston estate plan and preparing for retirement can often be an extremely stressful process, especially with the passage of new laws and regulations that impact a person’s plans. One such law that affected many people’s retirement savings was the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act came into effect on January 1, 2020, and created new requirements for defined contribution plans, such as 401(k)s and individual retirement accounts (IRAs). Below are some of the retirement and estate planning aspects most impacted by the passage of the SECURE Act.
Individual Retirement Accounts
Prior to the SECURE Act, an individual had to start withdrawing funds from their IRA, called required minimum distributions (RMDs), after they turned 70 ½ years old. Now, individuals are not required to withdraw from their IRA until they reach 72 years old. As there are income tax payments associated with RMDs, the SECURE Act can help reduce a person’s overall taxation rate. The SECURE Act also removed the age limit for IRA contributions; now, people can contribute to their IRA at any age, as long as they are still working. Before the passage of the SECURE Act, where removing funds from an IRA before turning 60 years old would make the withdrawal subject to income tax, people can now draw up to $5,000 from an IRA penalty-free after the birth or adoption of a child.
However, there are now more requirements for individuals who inherit an IRA after a loved one’s death. Previously, the beneficiary of an IRA was able to spread out the income tax over their lifetime by taking out only the required minimum distributions. Now, a beneficiary is required to withdraw assets from the inherited IRA within 10 years of the owner’s death.
Accumulation Trusts and Workplace Retirement Plans
The SECURE Act has introduced requirements that impact families with an accumulation trust. An accumulation trust gives the trustee discretion on whether to pay out or retain RMDs within the trust. However, with the passage of the SECURE Act, the tax rate for an accumulated trust is much higher than the individual tax rate.
For individuals who own a small business, the SECURE Act provides a tax credit for starting a workplace retirement plan. Small business owners can receive up to $250 per eligible employment, with a maximum credit of $5,000 per year.
Because changes, such as the passage of the SECURE Act, can affect a person’s estate plan, it is critical to consult an experienced estate planning attorney who will be aware of any relevant changes to Texas or federal law.
Contact a Houston Estate Planning Attorney
If you or a loved one needs assistance creating a Houston estate plan, or need to update an estate plan after a new federal or state law has been passed, contact the dedicated Houston estate planning attorneys at McCulloch & Miller, PLLC. With decades of experience handling elder law and estate planning issues, our dedicated lawyers will handle your legal matter with compassion and sensitivity. To schedule a free consultation, contact us at 713-333-8900 today.