by: Begley Law Group

 By: Thomas D. Begley, Jr., Esquire, CELA 


The SECURE Act passed by Congress and signed by President Trump became effective on January 1, 2020. The provisions of the SECURE Act apply to Qualified Retirement Plans and IRAs. The law was designed to raise approximately $16 billion for the Treasury, and to prevent retirement plans for being used as wealth transfer vehicles. Unfortunately, the tax will be paid primarily by your children. The significant changes are as follows: 

Required Minimum Distribution (“RMD”) Date. Initial RMDs have been delayed from April 1 of the year following the year in which the Plan Participant attains age 72 rather than the current 70-1/2. 

Contributions. The maximum age for contributions to a Traditional IRA has been eliminated, so long as you or your spouse are still working. Contributions may now be made at any age. 

Ten-Year Rule. Under the old law, an individual inheriting an IRA could take RMDs over the lifetime of the beneficiary. If a 44-year old child inherited his parent’s IRA, the child could withdraw from the IRA over the child’s remaining life expectancy in accordance with the tables, which would be 39 years. 

Under the new law, the 10-year mandatory withdrawal will result in significantly higher taxes for beneficiaries, usually children, inheriting IRAs, because they will be required to take minimum distributions while they are still working and the income from the RMD will be added to their employment income and other investment income and it is likely to place them in a much higher tax bracket. Just as important is that the time over which your child must take RMDs is reduced, thereby decreasing the time for the tax-free build-up. 

For example, if a parent dies leaving $500,000 in an IRA and an adult child age 44 is named as beneficiary, under the old law the income on the account would accumulate tax free and the money would grow until the child reaches age 83. Let’s assume a 6% growth rate in the account. The total to be distributed over the child’s lifetime would be $2,102,689.05. Under the new law, the distributions must be made over a period of 10 years, not 39 years, and the amount distributed would be reduced to $659,039.75. The difference is $1,443,649 that would not inure to your child’s advantage. In addition, if your child is still working, some of that retirement plan money will be withdrawn during your child’s lifetime and will be taxed on top of your child’s earned income in higher tax brackets. 


Non-Designated Beneficiary. If a retirement plan fails to designate a beneficiary, then on the death of the Plan Participant the Plan proceeds are payable to the decedent’s estate and must be withdrawn over a period of five years from the decedent’s death. Frequently, retirement plans name a spouse as primary beneficiary but fail to name a contingent beneficiary. If the spouse predeceases the Plan Participant or dies in a common disaster, then there is no designated beneficiary. This results in significantly increased taxes. A contingent beneficiary should always be named on a retirement account. 

Eligible Designated Beneficiaries (“EDB”). An EDB is a spouse, a disabled or chronically-ill individual, an individual less than 10 years younger than the Participant, and minor children. These are discussed below. The 10-year rule does not apply to these beneficiaries. 

Designated Beneficiaries. Designated beneficiaries are named beneficiaries who do not qualify as EDBs. The 10-year rule applies to all designated beneficiaries. 


There are exceptions to the 10-year mandatory RMD for individuals classified as EDBs. 

Inherited IRA – Spouse. A spouse who inherits an IRA from a deceased spouse may continue to receive benefits over the life expectancy of the surviving spouse. This is consistent with current law. The problem occurs on the death of the second spouse. The 10-year rule will kick in, unless the spouse’s beneficiary is an EDB. 

Disabled Beneficiaries. A disabled beneficiary of a retirement plan may continue to receive benefits over the life expectancy of the disabled individual. Again, the problem begins on the death of the disabled beneficiary. The 10-year rule will kick in, unless the disabled individual’s beneficiary is an EDB. To be considered disabled, a beneficiary must have received a Disability Determination from the Social Security Administration or a letter from a physician certifying to the disability. 

Chronically-Ill Individuals. Chronically-ill individuals may continue to receive benefits over the life expectancy of the chronically-ill individual. Again, the problem begins on the death of the chronically-ill individual. The 10-year rule will kick in, unless the chronically-ill individual’s beneficiary is an EDB. 

Individuals Less Than 10 Years Younger than the Participant. Individuals less than 10 years younger than the Participant may continue to receive benefits over the life expectancy of such individual. Typically, these would be siblings of the Participant. This only really provides a benefit in cases where the sibling is expected to live longer than 10 years after the death of the Participant. For example, if a Participant was 50 years but expected to die soon from a terminal illness, it would make sense to name a 48-year old sibling as beneficiary if that sibling is healthy and has a normal life expectancy. Again, the problem would begin on the death of the sibling when the 10-year rule would apply to the beneficiary at that time. 

Minor Children. Minor children of the Plan Participant may receive inherited benefits over their life expectancies, but only until they reach age 18. Thereafter, benefits must be paid out no later than 10 years after the child’s 18th birthday. Stepchildren and grandchildren do not qualify for this purpose. 


The magic of a retirement account is that it permits tax-free growth over a long period of time. In the example above, the adult child had 39 years of tax-deferred growth. Under the new law, if that child were a designated beneficiary, the tax-free period of growth would be reduced from 39 years to 10 years with a significant reduction in tax-deferred growth. There are a number of strategies to deal with this problem. These strategies include the following: 

Name Eligible Designated Beneficiary. Name an EDB as beneficiary of the retirement account. The 10-year rule does not apply. EDBs include a spouse, a disabled or chronically-ill individual, an individual less than 10 years younger than the Participant, and minor children. In some cases it may make sense to leave a retirement account to a Third Party Special Needs Trust for a disabled child or chronically-ill child, and leave non-retirement plan assets to healthy children. The same considerations would apply in determining what to leave to any EDB. Leave the retirement account to the EDB and non-retirement assets to the other beneficiaries. 

Lower Income Beneficiaries. If the Plan Participant has beneficiaries in significantly dissimilar tax brackets, all or a larger portion of the account owners IRA or 401(k) could be paid to the lower income tax bracket beneficiaries. It may be necessary to include compensating adjustments in the Plan Participant’s Estate Planning documents for the facts that (1) IRA proceeds are made payable to owner’s beneficiaries in unequal percentages, and (2) the owner’s beneficiaries who receive the IRA proceeds will eventually need to pay federal and state income taxes on the same. 

Life Insurance. The Plan Participant could use RMD or could withdraw additional monies from the retirement account to replace all or part of the lost growth. In our example above, the lost growth was $1,443,649. Retirement plan money could be used during the lifetime of the Plan Participant to play premiums on a life insurance policy in the amount of $1,443,649 to replace the child’s lost wealth. Actually, since the retirement account would have income taxable to the child upon withdrawal and the life insurance proceeds would not be taxable, the same result could be achieved by purchasing less life insurance. 

Hybrid Life/Long-Term Care Insurance Policy. Long-term care has become increasingly expensive and the premiums on long-term care insurance policies have skyrocketed. Most companies that originally sold long-term care insurance have gone out of business. However, there are hybrid life/long-term care insurance policies available on the market. These policies pay a long-term care benefit if the insured requires long-term care (and there is a 70% chance that everyone will require long-term care). If the insured does not require long-term care there is a life insurance benefit. Withdrawals can be made from the retirement account to pay premiums on these policies. While long-term care insurance of some type should always be considered, it is almost essential for the parents of children with disabilities. If the parent of a child with disabilities loses a considerable amount of his or her assets by paying for long-term care, this will reduce the amount of money available to provide for the child with disabilities on the death of the parent. The child with disabilities is likely never to be able to work and the inheritance from the parent is critical. 

Roth Conversion. There are situations where it may make sense for the retired parent to withdraw money from her retirement plan at the parent’s lower income tax rates and convert to a Roth IRA. On the death of the parent, the Roth IRA would go to the parent’s child who is still working and in a higher income tax bracket, so there could be a significant tax saving. Before making a decision in this regard, it is important to obtain a detailed illustration as to how the conversion would work. 

Multiple Beneficiaries. If there are multiple beneficiaries of a retirement account, the tax on the RMD will be spread over several tax returns. The Plan Participant might consider naming children and grandchildren as beneficiaries of the retirement account. If there are four children and six grandchildren, this would be ten income tax returns that would be paying tax on a smaller distribution from the retirement account. There may even be situations where it makes sense not to name a child in a high income tax bracket, but to name grandchildren in lower income tax brackets as beneficiaries. However, it is important to understand that until a child reaches age 18, or age 23 if the child is still a student, the “Kiddie Tax” applies. This means that distributions from the retirement account to the grandchild are taxed at his or her parents’ income tax rates. If a grandchild were 16 years of age, tax would be paid at his or her parents’ tax rate for two years, or longer if the grandchild were still a student, and then the grandchild’s tax rate for the next eight years, or shorter if the grandchild were still a student. 

Charity. If the Plan Participant is charitably inclined, one or more of these options may make sense.

Charity as Beneficiary. If a charity is named as beneficiary of the retirement account the charity pays no income tax, so the money is distributed income tax-free to the charity. 

Qualified Distribution to Charity (QDC). Money can be withdrawn from an IRA in amounts not to exceed $100,000 per year and paid directly to a charity. This is called a “Qualified Distribution to Charity,” and there is no income tax consequence to the Plan Participant. This is more advantageous than the Plan Participant taking RMD and then making a charitable distribution, since the benefit of the charitable distribution is limited. 

Charitable Remainder Trust. There are two types of Charitable Remainder Trusts. One is called a Charitable Annuity Trust, and the other is called a Charitable Remainder Unitrust. Under these trusts the retirement plan can be donated to charity. The charity will then pay an income stream to the Plan Participant’s children or grandchildren over a period of many years. The charity must receive at least a 10% benefit from the trust to qualify. This is a complex strategy and a detailed illustration as to the cost and benefit should be obtained before utilizing it. 

Gifting. It may make sense to withdraw money from a retirement account and make gifts. Gifts can take many forms.

Outright. The parent, if in a lower tax bracket, could take money from a retirement account at the parent’s lower tax rates and make outright gifts to children or grandchildren. 

Contribute to 529 Plan. A parent, if in a lower tax bracket, could make withdrawals from a retirement account and make a contribution to a 529 tax-deferred education account for the benefit of grandchildren, or even children, if appropriate. 

Premiums on Life Insurance (Parent). A parent could make a withdrawal from a retirement account and make a gift to a child who would pay premiums on a life insurance policy on the parent. The child would be the owner of the policy, so the proceeds would not be included in the estate of the parent. The child would be beneficiary of the policy on death and those funds would replace the loss of wealth discussed in the example above. 

Premiums on Life Insurance (Child). A parent could make a withdrawal from a retirement account and make a gift to a child who would pay premiums on a life insurance policy on the child. The premiums on this policy would be much cheaper, since the child would be younger, and the beneficiary of the policy would be grandchildren. The child would be the owner of the policy, so the proceeds would not be included in the estate of the parent. This strategy makes sense if the goal is to provide a significant benefit to grandchildren. 

Family Vacation. You only go around once. Plan Participants might consider withdrawing funds from a retirement account and paying for a family vacation for parents, children and grandchildren. That way the family can spend precious time together. There still may be a tax saving, if the parent is in a lower tax bracket than the children will be at the time of the parent’s death and the child’s required distributions. 

Social Security Deferral. By deferring your receipt of Social Security benefits, the benefit increases by approximately 8% per year. Currently, individuals are eligible to begin Social Security payments at age 62. However, these can be deferred until age 70. For each year of deferral the monthly payment would increase by approximately 8%. Plan Participants could take money out of the retirement account to make up for the lost income from Social Security and enjoy larger Social Security payments at age 70. 

Continue IRA Contributions. If the individual or spouse of the individual is working, they can continue to make contributions to an IRA account even after attaining age 70. This may make sense for many individuals. 


Trusts are frequently used to protect the inheritance that individuals leave their children from the children’s creditors, divorce, or squandering the money. There are two types of trusts recognized in the tax law: 

Conduit Trusts. Under a Conduit Trust the money received from the retirement account each year is paid to the child in the year received. There is an advantage to this type of trust in that the funds are not available to the child until the RMD is actually received by the trustee. Neither the child, the child’s creditors, nor the child’s spouse can invade the retirement account, so they would not have access to the funds until distribution is actually made to the child. This trust may offer less protection to the child than the Accumulation Trust discussed below, but it may also result in  less income tax. Tax on the distributions from the retirement account would be paid by the child rather than the trust and the child would normally have lower tax rates. 

Accumulation Trust. Under an Accumulation Trust the RMD is paid into the trust, but the trustee decides when to make the distribution to the child. This offers more protection, because while the retirement money is in the trust, it is protected from creditors, divorce, and squandering by the child. However, the tax may be higher, because the income would be taxed at trust tax rates rather than the child’s tax rates. There are certain situations, such as Special Needs Trusts, where an Accumulation Trust is required. 

Existing Trust Review. Under old law, the 10-year rule did not apply so Trusts were typically established providing for withdrawal and distribution over the life expectancy of the child. Since the law has been changed, these distributions must be taken under the terms of the 10-year rule for almost all beneficiaries. Therefore, all existing trusts should be reviewed with the idea of revising that language to comply with the new law. 


For many individuals a retirement account is their largest asset. They have worked hard and lived sensibly and put money away in a retirement account. Most individuals want to use these accounts to support themselves in retirement, but pass as much as possible on to future generations. In many cases, the fix is simple. In other cases, considerations are complex. It is suggested that individuals wanting to protect significant retirement accounts seek the advice of: 

Estate Planning Attorney. A competent Estate Planning attorney familiar with the SECURE Act should be engaged to discuss the alternatives and draft or revise the necessary documents and beneficiary designation forms. 

CPA. A Certified Public Accountant may be helpful to assist with illustrations and advice as to appropriate strategies. 

Financial Advisor. A Financial Advisor may be helpful to assist with illustrations and advice as to appropriate strategies.