Planning after the

Significant changes to the retirement planning landscape went into effect on January 1, 2020, after the signing of the SECURE (Setting Every Community Up for Retirement Enhancement) Act in December. The SECURE Act brings much-needed reform to the retirement system and will help more Americans save for the future, increase their savings and gain access to guaranteed income for life when they retire.
Among its many provisions, the SECURE Act eliminated the age limit for contributing to IRAs 1 and delayed the age when you are required to start taking money out of your retirement accounts from age 70½ to age 72, helping your money potentially last longer. 2 But the SECURE Act also changed the rules for beneficiaries who inherit your retirement account(s) after you are gone. Those changes are likely to have the biggest impact on estate and intergenerational wealth planning. Retirement accounts are often the largest assets left to beneficiaries, and the SECURE Act may dramatically change the way you plan to leave those assets behind. 3

How does the SECURE Act impact you and your beneficiaries?

Before the SECURE Act, many beneficiaries who inherited retirement accounts were required to withdraw a minimum amount annually from the accounts (RMDs), but could do it over their own lifetimes under a concept known as the “stretch” provision. Any taxes due were owed only on this annual RMD, a much lesser amount than if you had to withdraw the money all at once or in larger chunks. The rest of the money could then continue to potentially grow tax deferred. 

The new 10-year rule

Under the SECURE Act, beneficiaries (with some exceptions) will now be subject to the “10-year rule” and will be required to withdraw and pay any taxes due on the full inherited amount by the end of the 10th year following the year of the account owner’s death. The money can be withdrawn either in a single lump sum at any time during the 10-year period or in annual installments in any amount as long as the entire account is distributed by the 10-year deadline.
Example: Sam, who is 45, inherited an IRA from his mother. Before the SECURE Act, he would have been able to withdraw the money over his lifetime—approximately 39 years. Now Sam will be required to withdraw all the money within 10 years after the year of his mother’s death.
The new rules mean that your beneficiaries could end up with a smaller inheritance than anticipated on large, taxable retirement accounts because of the tax consequences of the shorter withdrawal period. It is therefore even more important now to have a plan that puts your beneficiaries in the best position possible when inheriting your retirement accounts.

Exceptions to the 10-year rule

Only “eligible designated beneficiaries” will be exempt from the 10-year rule and will still be permitted to stretch benefits over their lifetimes. Eligible designated beneficiaries include:
  • Spouses
  • Minor children of account owner (until age of majority)
  • Individuals who are disabled or are chronically ill
  • Other beneficiaries who are less than 10 years younger than the original account owner
In some cases, a “see-through trust” for the benefit of an eligible designated beneficiary may also qualify (see trust section below).

What should you do now?

Review your beneficiary designations

It is important to review your beneficiaries periodically to be sure they reflect your current wishes. In light of the SECURE Act, you may also want to review your overall beneficiary strategy. 
Traditionally, naming your spouse as the primary beneficiary and children or grandchildren (or trusts for them) as contingent beneficiaries was a common and tax-efficient way of transferring retirement assets to family members. This may still work in many cases. Disclaimer planning offers a variation to this approach, providing for children or grandchildren to inherit some of the assets at the death of the first spouse and the rest later. This could potentially create two separate 10-year withdrawal windows so your beneficiaries can better manage any tax liability on the inherited assets. Be sure to consult an attorney before making such decisions.
Another option is to leave your retirement accounts to a larger group of beneficiaries. This allows the tax liability to be shared amongst a greater number of individuals, each of whom would have their own 10-year timetable to withdraw their share of the assets. 

Review any trusts named as beneficiaries of a retirement account

If you have named a “see-through” trust as beneficiary of your retirement assets, now is the time to revisit this. In the post-SECURE Act environment, only see-through trusts set up for the eligible designated beneficiaries mentioned earlier will qualify for the stretch provision. The terms of some of these trusts may also now be problematic. An attorney can help you determine if any changes are necessary such as changing a “conduit” trust to an “accumulation” trust, which could give your trustee greater control over the timing and size of the distributions to serve the best interests of the beneficiary.

Consider which assets you are leaving to your heirs

Life insurance: Funding a life insurance policy is one way to pass on a sizeable, income tax–free death benefit to your beneficiaries. While the tax benefits of retirement accounts are designed for accumulating assets for retirement, the tax benefits of life insurance are designed to enhance wealth transfer. 

Roth accounts: Under the SECURE Act, Roth accounts may become an even more tax-effective planning strategy for those interested in leaving income tax–free retirement dollars to beneficiaries. Unlike pretax retirement assets, Roth accumulations are tax free when withdrawn since the contributions came from after-tax dollars. 4 Although they are also subject to the 10-year rule in most cases, qualified withdrawals from a Roth account are generally free from income tax—a big advantage over withdrawals from pretax accounts, which are taxed as ordinary income.  

See if charitable donations from retirement assets may be a tax-efficient strategy for you

Finally, if you are charitably inclined, leaving your retirement assets to your favorite charity remains a sound tax-planning strategy. Leaving assets outright to charity or considering a charitable remainder trust (CRT) may create income tax efficiencies. 

Talk with a TIAA advisor

As the SECURE Act changes the way your retirement accounts are treated, make sure your retirement planning is changing with it. A TIAA advisor can help you with a personalized plan that works for you and your beneficiaries. Always consult with an attorney and a tax advisor before making changes that could affect your estate and tax planning.
To learn more about how the SECURE Act may affect you, go to .
You can now continue to contribute to IRAs after age 70½ as long as you still have earned income. You can contribute up to $7,000 per year (up to your earned income) if you are over age 50.
2 The age at which required minimum distributions (RMDs) must begin has increased 18 months from age 70½ to age 72 for individuals who turn 70½ after December 31, 2019. If you turned 70½ on or before December 31, 2019, you will still need to take RMDs beginning at age 70½. 
3 The new rules will impact beneficiaries that inherit retirement assets from someone who has died on or after January 1, 2020. Beneficiaries inheriting retirement plan assets from deaths occurring before January 1, 2020, will fall under the previous rules. The changes to the distribution rules for designated beneficiaries of certain accounts under governmental plans (as defined in IRC section 414(d)) do not take effect until January 1, 2022.
4 Money in Roth (after-tax) accounts is tax free when withdrawn, including earnings, unless assets were not yet held in the account for at least five years.
Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.
This information herein is provided to you for informational purposes only and should not be relied upon as legal or tax advice. Please consult with your legal and tax advisors before implementing or making changes to your documents.
This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

©2020 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, New York, NY 10017