LLG Blog

Tuesday, April 27, 2021



The Setting Every Community Up for Retirement Enhancement (SECURE) Act is the biggest retirement planning law in decades. However, when all is said and done, the new law may have just as significant an impact on estate planning, especially if younger individuals are in line to inherit IRA or qualified retirement plan accounts.

Key Secure Act Provisions

The SECURE Act includes noteworthy provisions for both individuals and businesses. (See “Nothing personal, strictly business” at X for business-related provisions.) Here’s a summary of the key tax law changes for individual retirement-savers.

Delayed RMDs. Generally, you must begin taking distributions from qualified retirement plans and IRAs after a certain age. Prior to the SECURE Act, these “required minimum distributions” (RMDs), which are based on your account balance and life expectancy, had to start in the year after the year you turned 70½. The SECURE Act extends the age requirement to age 72, giving you even more time to build up your tax-deferred nest egg.

IRA contributions. Previously, you couldn’t contribute to an IRA after age 70½, but the SECURE Act removes this age restriction. This enables you to supplement existing retirement plan accounts with IRA contributions if you contiue working. For 2020, the annual contribution limit is the lesser of earned income or $6,000 ($7,000 if you’re age 50 or older). 

Annuity options. To encourage the use of annuities in retirement planning, the new law requires 401(k) plan administrators to provide annual “lifetime income disclosure statements” reflecting annuity options. In addition, it provides more flexibility to participants who acquire annuities, including portability between plans (such as when an employee leaves a job and begins participating in a new employer’s 401(k) plan).

Stretch IRAs. The SECURE Act cracks down on stretch IRAs that allowed beneficiaries (other than a spouse) to spread out RMDs over their life expectancies. If set up properly, a stretch IRA could span multiple generations and last indefinitely. Furthermore, this technique could also be used to slow down RMDs from qualified retirement plans as well as IRAs.

Under the SECURE Act, funds from inherited accounts must be distributed to beneficiaries (again, other than a spouse) within 10 years of the account owner’s death. This provides a finite end to stretch IRAs and reduces their effectiveness as an estate planning tool.

Be aware, however, that the qualified beneficiaries who inherited accounts before 2020 can still benefit from a stretch IRA. Also, the new law includes exceptions for surviving spouses; minor children up to the age of majority; disabled and chronically ill individuals; and those not more than 10 years younger than the IRA owner, as long as they remain qualified beneficiaries.

Strategies After the Secure Act

Because of the SECURE Act’s impact on estate planning, review your estate plan and corresponding documents, such as beneficiary designation forms. In light of the changes, you may be inclined to make certain revisions, especially in regards to stretch IRAs.

It may make sense to convert a traditional IRA into a Roth IRA. Generally, RMDs from inherited Roth IRAs will be 100% tax-free. This provides a distinct advantage over traditional IRAs. Balance the current tax liability for a conversion against the benefit of future tax-free payouts.

Alternatively, you might establish a charitable remainder trust (CRT). With this approach, the charity designated as the beneficiary receives the trust remainder on your death, while designated income beneficiaries, such as your children, receive annual distributions from the CRT.

Similarly, you might arrange qualified charitable distributions (QCDs) to go directly from an IRA to a charity. If you’re over age 70½, you don’t owe any tax on transfers up to $100,000 a year (but contributions aren’t deductible either). Significantly, the QCDs count as RMDs.   

Another option is to buy life insurance if you’re currently between age 59½, when you’re no longer penalized for early IRA withdrawals, and the new RMD starting age of 72. Then you can use IRA distributions to acquire cash value life insurance and name a nonspousal relative as beneficiary. Although you’ll owe tax on the IRA distributions used to fund the policy, your beneficiaries generally won’t be taxed on the life insurance proceeds. To top it off, the life insurance proceeds are removed from your taxable estate.

Going one step further, an owner of a large IRA can create a trust for family members and purchase a life insurance policy inside the trust. You can use IRA distributions to make gifts to the trust to pay the life insurance premiums. At death, the death benefit funds a trust that provides a regular income stream to beneficiaries.


Provision of the SECURE Act will likely affect your retirement and estate plans. Your estate planning advisor can help you review your plans to ensure that they continue to meet your objectives.

SIDEBAR: Nothing personal, strictly business

Small business owners may benefit from the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Notably, the new law increases the maximum tax credit for starting up qualified retirement plans from $500 to $5,000. In addition, it creates a new credit for using the automatic enrollment feature in 401(k) and SIMPLE plans. Both credits are eligible for a three-year period, beginning in 2020.

The SECURE Act also includes various employee protections and safe-harbor rules.

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