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The SECURE Act Impact On Your Retirement

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May 17, 2020

The SECURE Act Impact On Your Retirement

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law by President Trump on December 20th of that year. In addition to making it easier for employers to establish retirement plans for their employees and increasing the age at which you have to start taking RMDs (70 ½ to 72), it significantly changed how non-spouse beneficiaries can withdraw the qualified money (Traditional 401(k) and IRA) they inherit. Previously, if a beneficial IRA was established correctly, you had your entire life to withdraw the proceeds. This made the tax bite significantly less onerous! Under the new law, there is no longer a required minimum distribution (RMD); instead you have up to 10 years to withdraw all of the proceeds. This seemingly innocent change will likely cause the beneficiary to pay anywhere between 11 and 24 times more in federal taxes then they would've under the previous rules.

Certainly, it seems more like six years then six months have passed since this was placed into law and, under current circumstances, the ramifications of this law have gone mostly unnoticed. Let's run through a quick case study to illustrate the significance.

The following assumptions were utilized in making the comparison (this is intended for illustration purposes only - consult your tax professional for specifics regarding your situation):

  • Inheritance of 1 million dollars coming from a Traditional IRA
  • The beneficiary is a 40-year-old single individual with no other taxable income, filing with the standard deduction (the only tax calculated will be as a result of taxable distributions from the inherited IRA)
  • The current tax rates/tables were used in determining the tax liability
  • The Uniform Lifetime Table - Single Life Expectancy Table was used in determining RMD figures

3 calculations are made:

  • RMDs and tax liability pre-SECURE Act
  • Two iterations under the current SECURE Act: $1,000,000 is withdrawn the 1st year, or
  • 10 equal payments of $100,000 distributed over 10 years

Under the old law, the non-spouse beneficiary would have paid approximately $14,000 in federal income taxes over the first ten years of their inheritance. Under the SECURE Act, the beneficiary will have to pay approximately $330,000 if the entire balance is withdrawn in the 1st year and approximately $151,000 in taxes if the balances are withdrawn over the 10-year timeframe. That is a potential increase of 11 to 24 times in taxes paid by the beneficiary! This change has certainly created the need for a new level of planning.

So, what are the potential solutions?

  • Do nothing - not recommended but always an option
  • Roth conversion - is your tax liability lower than the beneficiary's?
  • Roth or after-tax contributions instead of continuing contributions to the pre-tax 401(k)
  • IRA spend down instead of utilizing non-IRA assets for current living expenses
  • Shift beneficiaries - is one beneficiary in a lower tax bracket than another?
  • Utilize cheaper money to pay the tax - life insurance, hybrid LTC, etc.


There is no simple or clear-cut answer. Everyone's situation will be different, although one thing is certain: the SECURE Act brings with it significant changes to the transfer of wealth and makes it more difficult to lift up the next generation.

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About the author

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Kile Lewis

co-Founder

Kile co-founded oXYGen Financial in answer to increasing requests from successful young people - Generation X and Generation Y investors, families, and entrepreneurs - for financial planning and advice matched to their unique needs. oXYGen Financial is a financial and lifestyle management company that understands that life isn't about income statements and balance sheets.

Kile is no stranger to the Financial Services Industry, having spent 15 years as both an executive and financial advisor for the 3rd largest broker dealer in the country. He amassed tremendous competencies in leadership and financial planning through his 15 years of tenure in both of those roles.

After earning his Bachelor of Arts degree from Georgia State University in 1994, Kile joined then, American Express Financial Advisors in Dallas, Texas. He quickly rose through the ranks of his advisor peers and was promoted to his first leadership position in 1997. Promoted to Field Vice President in 2002, he led one of the top offices for Ameriprise the years 2003 through 2006 and was awarded the Ameriprise Outstanding Leader Award in 2006. Through his eleven plus years of leadership, Kile has personally hired and developed hundreds of advisors and leaders. Background and qualification information is available at FINRA's BrokerCheck website.

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