WHAT DOES THE SECURE ACT MEAN FOR YOU?
On December 20, 2019, President Trump signed an appropriations bill that (1) prevented a government shutdown, and (2) contained what had previously been tagged as the “Secure Act.”
If you need something to read over the Holidays, this would not be recommended reading. It’s 1,773 pages! If you make it far enough, you’ll come to “DIVISION O—SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT” on page 1,532. If you’re still curious, here’s a link to the text of the new law:
Section (a)(2)(E)(ii) contains one of the new provisions. “Eligible Designated Beneficiaries” get better stretch options:
(2) DEFINITION OF ELIGIBLE DESIGNATED BENEFICIARY.—Section 401(a)(9)(E) of such Code is amended to read as follows:
- (E) DEFINITIONS AND RULES RELATING TO DESIGNATED BENEFICIARIES.
- (i) DESIGNATED BENEFICIARY. The term ‘designated beneficiary’ means any individual designated as a beneficiary by the employee.
- (ii) ELIGIBLE DESIGNATED BENEFICIARY. The term ‘eligible designated beneficiary’ means, with respect to any employee, any designated beneficiary who is
- (I) the surviving spouse of the employee,
- (II) subject to clause (iii), a child of the employee who has not reached majority (within the meaning of subparagraph (F)),
- (III) disabled (within the meaning of section 72(m)(7)),
- (IV) a chronically ill individual (within the meaning of section 13 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature), or
- (V) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee.
What does all of this mean?
- The law does recognize trusts for disabled and chronically ill beneficiaries, but it will be important that the disabled or chronically ill beneficiary have an identifiable share in the trust, with the administered separately from the shares of other beneficiaries.
- Trusts for other beneficiaries who are not eligible designated beneficiaries will need to be monitored so that the distributions are made within the time required by the new law.
- Beneficiaries who are not “eligible beneficiaries” will only have ten years to take the distributions.
- As always, it will be critical to designate beneficiaries on the account beneficiary forms so that individuals, including their separate shares in a trust, can be identified.