Kent, WA -- (ReleaseWire) -- 02/03/2020 --On January 1st, 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act officially went into effect. The legislation, which garnered significant bipartisan support in both the House of Representatives and the Senate, was signed into law by President Trump last month. The law puts sharp new limits on the use of so-called 'Stretch IRAs'—which were long a popular estate planning strategy.

Many Beneficiaries Can No Longer Stretch Tax-Deferred Investment Holdings

Under the old rules, most people who inherited a tax-advantaged retirement account, such as a traditional IRA or a Roth IRA, from a loved one were permitted to "stretch" withdrawals over the course of their life. In other words, they could take the minimum required distribution during each period. Doing so offered significant financial advantages, as it allowed the investment holdings in the account to continue to earn returns on a tax-deferred basis.

Under the SECURE Act, most beneficiaries will now be required to take all of their withdrawals on an accelerated ten year basis—meaning, access to the Stretch IRA is no longer an option that is available to everyone. The federal government is limiting access to this strategy. Notably, conduit trusts, which were often used in conjunction with Stretch IRAs, may now create adverse financial ramifications.

The SECURE Act Creates Five Exceptions to the Elimination of Stretch IRAs

It should be noted that the SECURE Act carves out five specific exceptions to the new rules. A beneficiary can still take minimum required payouts and stretch their tax-deferred retirement investments if they fit into one of the following five categories:

1. Surviving spouses;
2. Children who are minors;
3. I0ndividuals with disabilities;
4. Individuals with a chronic illness; and
5. Individuals within ten years of age of the original plan participant.

Careful Estate Planning May Mitigate the Impact of the Changes

With a federal law in place, it may be the appropriate time to update your estate plan. As noted by Renton, WA estate planning attorney Dan Kellogg, "The federal reforms reduce the value of a popular estate planning option for retirement account holders. If you are one of the many Americans affected by these changes, there may be strategies available to limit any adverse effects of the statutory changes. As with other estate planning issues, you can best protect your financial interests by taking a proactive approach.