02/25/2023
Effects of SECURE Act 2 on CA Trusts
A cumbersome name, The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) 2 passed into law December 29, 2022. The law was supposed to help retirees, but as with other laws whenever benefit is given something else seems to be taken away.
The bill seeks to build on the SECURE Act of 2019 by expanding access to retirement plans, increasing contribution limits, and making other significant changes to the retirement system. It is important for Californians to understand the potential impact the SECURE Act 2 could have on their Trusts.
Trusts are a popular estate planning tool used by Californians to protect their assets and transfer wealth to future generations. However, the SECURE Act 2 could have implications for how Trusts are used in retirement planning.
One of the primary changes in SECURE Act 2, is the elimination of the stretch IRA provision. Currently, non-spouse beneficiaries of inherited IRAs can stretch the distributions over their lifetime, allowing them to take advantage of the tax-deferred growth of the IRA over many years. However, the SECURE Act 2 requires most non-spouse beneficiaries to withdraw the entire inherited IRA within 10 years of the account owner's death. This change could impact the use of Trusts as a means of stretching IRA distributions over multiple generations.
Another impact of the SECURE Act 2 on California Trusts is the increase in the age for required minimum distributions (RMDs) from 72 to 75. This change allows retirees to defer taking distributions from their retirement accounts for a few extra years, potentially reducing the tax burden on those distributions. However, it could also impact the timing of distributions from Trusts that are structured to provide income to beneficiaries based on RMDs.
The SECURE Act 2 also proposes to increase the automatic enrollment safe harbor cap from 10% to 15% of pay, which could lead to more employees contributing to their retirement plans. This change could increase the amount of retirement assets passing to Trusts, which could impact how Trusts are structured and managed.
In conclusion, the SECURE Act 2 has the potential to significantly impact the retirement planning landscape in California, including the use of Trusts as an estate planning tool. It is important for Californians to work with their financial advisors and estate planning attorneys to understand the implications for their specific situation and make any necessary adjustments to their retirement and estate plans.
Not intended as legal or financial advice. This merely informative post is recommended to be discussed with your personal financial or legal advisors.
