How Will the Secure Act Changes IRAs and RMDs?

The House has passed what could be a landmark retirement law that will impact workers, retirees and heirs. Some of the most important provisions will modify existing retirement plans.

Kiplinger’s recent article, “Secure Act Calls for Changes to IRAs, RMDs,” reports that IRA owners should understand some of the key provisions of the bipartisan Setting Every Community Up for Retirement Enhancement Act of 2019. This bill passed the House in a 417-3 vote and is now in the Senate’s hands.

The three changes that are discussed below will go into effect after December 31, 2019, provided the House bill is enacted as written.

The Age Cap Repeal. The Secure Act gets rid of the age cap for traditional IRA contributions, which is now at 70½. This would let older workers save some of their earned income in a traditional IRA, just as they can now in a Roth IRA. For those 50 and older in 2019, the maximum contribution is $7,000. An older worker who has enough income to cover the total IRA contributions, could also contribute to a spousal IRA for a retired spouse.

An Increase in the RMD Age. The House bill increases the starting age for required minimum distributions (RMDs) from retirement accounts to 72, from 70½. That’s a win for older workers and retirees, who don’t need to tap their retirement accounts to cover expenses. Because the change would be effective after December 31, 2019, people who turn 70½ in 2020 would be the first to benefit. IRA owners currently taking RMDs wouldn’t be impacted.

The Loss of the “Stretch IRA.” Although the Act may benefit some retirement account owners, it’s not so nice to non-spouse heirs. The bill would get rid of heirs’ ability to stretch out RMDs from inherited retirement accounts over the non-spouse heirs’ own life expectancies. This currently allows more of the money to grow tax-deferred and lessens the heirs’ income tax bill. However, the Act would require inherited assets to be withdrawn within 10 years. Beneficiaries of larger accounts could have much bigger IRA withdrawals, as well as larger tax liabilities, than they’d anticipated.

This change will require some additional estate planning for many IRA owners. Heirs will need to review their tax-planning strategies, if they receive a windfall. Repealing the age cap on contributions and raising the age for RMDs could be beneficial to some, but retirees would have to weigh that with accumulating too much in an IRA. The loss of the stretch could make Roth accounts more attractive, because heirs can withdraw Roth money tax free.

Reference: Kiplinger (June 14, 2019) “Secure Act Calls for Changes to IRAs, RMDs”

Suggested Key Terms: Estate Planning, Legislation, IRA, Roth IRA, Required Minimum Distribution, RMD, Asset Protection, SECURE Act

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Business Owners Need Estate Plan and a Succession Plan

Business owners get so caught up in working in their business, that they don’t take the time to consider their future—and that of the business—when sometime in the future they’ll want to retire. Many business owners insist they’ll never retire, but that time does eventually come. The question The Gardner News article asks of business owners is this: “Do you have a business succession strategy?”

It takes a very long time to create a succession plan that works. Therefore, planning for such a plan should begin long before retirement is on the horizon. That’s because there are as many different ways to map out a succession plan, as there are types of business. A business owner could sell the business to a family member, an outsider, a key employee or to all the employees. The plan could be implemented while the business owner is still alive and well and working, or it could be set up to take effect, only after the owner passes.

The decision of how to handle a succession plan needs to be made with a number of issues in mind: family dynamics and interest in the business (or lack of interest), the nature of the business, the success of the business and the owner’s overall financial situation.

Here are a few of the more popular strategies:

Selling the business outright. There are business owners who don’t need the money and feel that no one else will care as much as they do about their business. Therefore, they sell it. There needs to be a lot of planning to minimize tax liability, when this is the choice.

Using a buy-sell arrangement to transfer the business. This can be structured in whatever way works best for both parties. It allows a slower transition to new ownership. Some families use the proceeds of a life insurance policy to fund the buy-sell agreement, so family owners could use the death benefit to buy the owner’s stake.

Buying a private annuity. This permits the owner to transfer the business to family members, or someone else, who then makes payments to the owner for the rest of their life, or maybe their life and another person, like a surviving spouse. It has the potential to provide a lifetime stream of income and removes assets from the owner’s estate, without triggering gift or estate taxes.

The plan for succession needs to align with the business owner’s estate plan. This is something that many estate planning attorneys who work with business owners have experience with. They can help facilitate the succession planning process. Talk with your estate planning attorney when you have your regular meeting to review your estate plan about what the future holds for your business.

Reference: The Gardener News (June 4, 2019) “Do you have a business succession strategy?”

Suggested Key Terms: Business Owner, Succession Plan, Estate Plan, Retirement, Private Annuity, Buy-Sell Agreement, Life Insurance Policy

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What Do I Do With My Dad’s Timeshare When He Passes Away?

When a timeshare owner dies, the timeshare will usually be part of the deceased owner’s estate, according to’s recent article, “My dad had a timeshare and died without a will. I don’t want it. What do I do?” The contractual obligations of the timeshare owner become the responsibility of the next-of-kin or the beneficiaries of the estate.

When the timeshare company hears of the owner’s death, they may keep sending letters to him for his expenses. Is there any way that the owner’s children could be held responsible for the timeshare expenses?

Legally speaking, a timeshare is an agreement or arrangement in which parties share the ownership of or right to use property. Each owner is entitled to use the property for a specific period of time. Some examples of timeshare ownership are a vacation club at a tropical resort or a villa at a ski destination.

There are three basic types of timeshare programs: fee simple, leasehold, and right-to-use (‘RTU’). In addition, there are some variations of RTUs, like points systems and fractional/private residence clubs.

The executor or administrator of the estate will need to contact the timeshare company and/or locate a copy of the owner’s contract to find out what the financial and legal obligations are under the contract.

In addition, the executor may decide to contact an estate planning attorney, especially if the timeshare is out-of-state. This is important as the laws concerning timeshare agreements and inheritances vary from state to state.

The next-of-kin and estate beneficiaries do have the option of declining their inheritance, including a timeshare. If they want to do this, they’ll typically be required to sign and file an inheritance disclaimer document.

If the timeshare is disclaimed, it would pass to the next individuals or entities with a right to inherit.

If the estate fails to make the payments on the timeshare while the owner’s estate is being probated, fees and penalties may accrue. At that point, the timeshare company and the property manager may file a lawsuit against the estate to get their money due them pursuant to the timeshare agreement.

However, if the property is disclaimed by all of the heirs, the property manager may likely foreclose on the timeshare, so any accrued debt would be paid from the estate’s assets. That foreclosure shouldn’t impact the credit of any heir who disclaimed the timeshare.

Reference: (June 3, 2019) “My dad had a timeshare and died without a will. I don’t want it. What do I do?”


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