How the SECURE Act Affects Your Retirement and Estate Plans

Stay up to date on the latest rules that impact your IRA and 401(k) contributions, withdrawals, and inheritances.

By , Attorney · Harvard Law School

As if planning for the future were not fraught enough, every so often new legislation comes along and changes up the rules. The SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2021 instituted several changes related to retirement plans in general, as well as what happens to retirement accounts that are inherited. Shortly after, the SECURE 2.0 Act (effective in 2023) added a few more updates.

Although it might seem like you need to be an expert to navigate the new rules, in fact, most people need to be aware of only a few changes. Below, we outline these changes so that you can easily determine if any apply to you.

Do the SECURE Act and SECURE 2.0 Act Affect Your Retirement or Estate Plan?

The changes made by the SECURE Act and SECURE 2.0 Act might impact you if any of the following describe you:

  • You would like to contribute to your traditional IRA past the age of 70.
  • You would like to delay withdrawals from your retirement accounts for as long as possible.
  • You're a new parent or are planning to have or adopt children in the future (and funds are tight).
  • You have a need to withdraw a small amount (up to $1,000) from your retirement account for an emergency.
  • You're between the ages of 60 and 63 and would like to maximize your catch-up contributions to your retirement account.
  • You have named someone besides a spouse to inherit your retirement account.
  • You have inherited a retirement account from someone who is not your spouse.

To learn more about how the SECURE Act and SECURE 2.0 Act impact these situations, read on.

What Are the Main Changes Introduced by the SECURE Act and SECURE 2.0 Act?

The key takeaways of the SECURE Act and SECURE 2.0 Act, as they relate to retirement and estate planning, are explained below. The first three changes affect contributions to and withdrawals from retirement accounts. The fourth change affects what will happen to your retirement account once you die and your beneficiaries—the people you've named to inherit the account—take ownership. (To learn more about different types of retirement accounts, see Estate Planning: IRAs and 401(k) Accounts.)

1. You can now contribute to a traditional IRA past 70½ years of age.

Prior to the SECURE Act, once you reached the age of 70½, you could no longer make contributions to a traditional IRA. Now, regardless of age, you can continue contributing to your traditional IRA for as long as you are still working. (Roth IRAs and 401(k)s did not have contribution age limits and remain unchanged.)

2. You can now wait until age 73 to take required minimum distributions (RMDs) from your traditional IRA or 401(k).

Before the SECURE Act was passed, you were generally required to begin withdrawing a certain amount of money each year—called a "required minimum distribution" or "RMD"—from your traditional IRA or 401(k) once you reached the age of 70½. The SECURE Act pushed this starting age back to 72, and the SECURE 2.0 Act further increased the age to 73. (In 2033, this age is set to increase yet again to 75.)

In other words, the SECURE Act and SECURE 2.0 Act allow extra time for the money to grow in your retirement account tax-deferred.

Note: Roth IRAs, unlike traditional IRAs, do not have RMDs, so you can leave your money in the account until any age. On the other hand, a Roth 401(k) did require RMDs, but the SECURE 2.0 Act eliminates this requirement beginning in 2024.

One exception, which remains unchanged, allows you to delay RMDs past the age of 73: If you are still working, have a 401(k) at your current company, and do not own 5% or more of the company, you can defer taking RMDs on that particular 401(k) until you retire. This exception doesn't apply to a 401(k) from a previous employer, only a current one.

Another exception was the RMD waiver put in place by the CARES Act. Required distributions from IRAs and most employer plans were suspended due to the COVID-19 pandemic, but those waivers are now over.

3. New parents can withdraw $5,000 each from their retirement plans without penalty.

Upon the birth or adoption of a child, each parent can now take $5,000 out of an IRA or 401(k) without incurring the early withdrawal penalty. (The penalty for withdrawing before the age of 59 ½ is usually an additional 10% income tax on the amount withdrawn.) From the date of the child's birth or the date the adoption becomes final, each parent has one year to withdraw up to $5,000; this applies for every child born or adopted into the family. At a later date, the parent can choose to "repay" this amount back into the retirement account by putting in the same amount over the contribution limit.

4. Emergency withdrawals of up to $1,000 are available without penalty.

Beginning in 2024 (under the SECURE 2.0 Act), you can take one withdrawal of up to $1,000 a year from your retirement account for a personal or family emergency. You won't incur the usual penalty for an early withdrawal. However, you must repay what you withdrew within the next three years, and you can't take any more emergency withdrawals during that time unless you've repaid the first emergency withdrawal.

5. People between the ages of 60 and 63 can contribute more than the regular catch-up amount.

Current law allows those over 50 years old to contribute more than the regular annual contribution amount to their retirement plan; these additional amounts are called catch-up contributions. Effective in 2025, the SECURE 2.0 Act allows those ages 60-63 to increase their catch-up contributions to (1) $10,000 or (2) 50% more than the regular catch-up amount, whichever is greater. (These amounts will be adjusted for inflation in the future.) So if you're between 60 and 63, have the extra cash, and want to max out your retirement contributions, consider this option.

6. Inherited IRAs and 401(k)s: Most non-spouse beneficiaries will be required to take the money out earlier.

Generally speaking, taking advantage of the tax-deferred growth in a traditional IRA or 401(k) by leaving money in the account for as long as possible has financial benefits. This is true for those who inherit these accounts as well. Moreover, if beneficiaries have more control over their withdrawals, they might be able to wait until they're in a lower tax bracket to withdraw more money, or space out their withdrawals over many years to avoid being sent into a higher tax bracket due to one large withdrawal within a given year.

Unfortunately, the SECURE Act has shortened the withdrawal period available to non-spouse beneficiaries. (In contrast, beneficiaries who are spouses of the account holders have more options. To learn more about these options, read Naming Your Spouse to Inherit Retirement Accounts.)

Previously, starting the year after your death, if you had already started taking RMDs, then non-spouse beneficiaries were also required to take a minimum amount out of the inherited account each year. This amount was based on the beneficiary's expected lifetime—the younger the beneficiary, the smaller amount.

Now, the SECURE Act imposes a 10-year rule on non-spouse beneficiaries: they must withdraw the entirety of the account within 10 years of the account owner's death. However, there are exceptions for certain categories of beneficiaries, called "eligible designated beneficiaries," who can choose to withdraw amounts based on their expected lifetimes instead. Eligible designated beneficiaries include:

  • A minor child. Any child who is a minor may make withdrawals based on their (long) expected lifetimes. A child is no longer when they reach the age of 21 (regardless of the age of majority in the child's state), at which point the 10-year rule kicks in.

EXAMPLE: Seven-year-old Benny inherits his mother's 401(k). Under the new SECURE Act rules, he can make the minimum withdrawals based on his age until he turns 21, at which point he will have 10 years to withdraw the entirety of the 401(k). In other words, he will have to deplete the account by the time he turns 31.

  • A disabled or chronically ill person. Whether a beneficiary qualifies as disabled or chronically ill will depend on a number of factors, set out by the IRS. For example, the impairment must be likely to result in death or be of continued, indefinite duration. Beneficiaries who qualify may take withdrawals based on their expected lifetimes.
  • Anyone not more than 10 years younger than the deceased account holder. A beneficiary who is 10 years younger than the account owner or less may choose to make withdrawals based on the beneficiary's own life expectancy.

EXAMPLE: Jessie names her brother Tad, who is five years younger than she is, as the beneficiary to her IRA. After Jessie dies, Tad can make withdrawals based on his own age.

Unless one of these exemptions applies, non-spouse beneficiaries who fail to follow the 10-year rule will incur a significant penalty.

If you are one of multiple beneficiaries to a single retirement account, the situation gets more complicated, and it is usually a good idea to split the account among the beneficiaries.

The SECURE Act took effect on January 1, 2020, and the SECURE 2.0 Act made additional changes after 2022. If you inherited a retirement account from someone who died before 2020, the old rules still apply to you.

Proposed Regulations

The IRS has released Proposed Regulations explaining how the 10-year rule works among other things. Since the passage of the SECURE Act, many questions have been raised about how the new laws should be interpreted.

Following are some of the unexpected interpretations of the new law that appear in those regulations. (Note that these Proposed Regulations have been sent out for comment and won't be finalized until comments are received and reviewed. For now, they provide insight into the current thinking of the IRS on key issues.)

Clarifications on Ten-Year Rule

The most significant and surprising change concerns the 10-year rule as it applies to inherited retirement plans. Before these Proposed Regulations were issued, tax practitioners believed that designated beneficiaries who were subject to the 10-year rule would not be required to take annual distributions. Instead, it was thought that designated beneficiaries could take distributions in any amounts over the 10-year period (or forgo them entirely), as long as the assets of the account were entirely distributed by the end of the 10-year period.

The Proposed Regulations seek to clarify that only designated beneficiaries of retirement plan owners who died before their required beginning date will have that option.

Designated beneficiaries of retirement plan owners who died on or after their required beginning date must take at least a minimum annual distribution (according to a formula) during the 10-year period and then withdraw whatever remains at the end of the 10-year period.

The IRS, however has waived this requirement for the years 2020 through 2024. So if you inherited a retirement plan from someone who died in 2020 or later, you don't need to take an annual distribution until 2025.

Clarifications on the Definition of Eligible Designated Beneficiary

The Proposed Regulations simplify the test for when a minor child has reached the age of majority. Now, for purposes of the required distribution rules, a minor child is simply one who has not yet reached the age of 21, regardless of whether or not the age of majority is different in the taxpayer's state.

In addition, the Proposed Regulations clarify existing definitions of disabled and chronically ill individuals and also add a safe harbor definition of a disabled individual.

Clarifications on Trust Beneficiaries

Trusts can be complicated. For years, the IRS has been called upon to rule on whether or not a trust beneficiary qualifies as a designated beneficiary (or more recently, an eligible designated beneficiary). The Proposed Regulations simplify the determination of which beneficiary's life must be used to calculate required distributions, and which remainder or contingent beneficiaries may be disregarded.

After the IRS publishes Final Regulations, these rules will be explained in the next edition of Nolo's book IRAs, 401(k)s & Other Retirement Plans: Strategies for Taking Your Money Out, by John Suttle and Twila Slesnick.

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