The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law on December 20, 2019, remains one of the most significant pieces of retirement legislation in decades. It reshaped how Americans save for retirement, how employers offer retirement plans, and — critically — how beneficiaries inherit and withdraw from IRAs.
In short: the SECURE Act changes expanded retirement savings opportunities for individuals and small businesses, but eliminated the “stretch IRA,” meaning many heirs now face a faster, more tax-costly payout timeline than before. If you have significant assets in a traditional IRA or retirement plan, this is worth revisiting with your advisor.
Below, we break down the core SECURE Act provisions — what changed, who’s affected, and what to do about it.
Elimination of the “Stretch IRA”
Before the SECURE Act, non-spouse beneficiaries could “stretch” required minimum distributions (RMDs) from an inherited IRA over their own life expectancy — sometimes for decades — spreading out the tax impact.
Under the SECURE Act’s stretch IRA rules, most non-spouse beneficiaries more than 10 years younger than the original account owner must now empty the inherited account within 10 years of the owner’s death. Exceptions apply to:
- Surviving spouses
- Disabled or chronically ill individuals
- Minor children (until they reach the age of majority)
- Beneficiaries not more than 10 years younger than the original owner
Important update: Final IRS regulations issued in 2024 clarified that if the original account owner had already begun RMDs before death, most beneficiaries subject to the 10-year rule must take annual RMDs during years one through nine, not just a lump sum in year 10. If the owner had not yet begun RMDs, beneficiaries can wait and withdraw the full balance any time within the 10-year window.
This shortened timeline can push heirs into higher tax brackets in the years they take distributions, especially with large traditional IRA balances. Anyone who built an estate plan — including trusts — around the old stretch IRA rules should have that plan reviewed.
Possible Solutions
- Reevaluate beneficiary designations to reflect the new 10-year rule.
- Consider a Roth IRA conversion. Roth IRAs can generally be inherited income-tax-free, which removes the tax sting from a compressed withdrawal timeline.
- Spread conversions over multiple years to manage the tax impact incrementally rather than converting a large balance all at once.
Learn more about IRA contribution limits for 2024 to maximize your savings.
Understand the impact of the SECURE Act on Social Security retirement planning.
Explore options for building the best retirement portfolios.
SECURE Act Retirement Changes for Individuals
Beyond the stretch IRA, the SECURE Act added several benefits for workers and retirees:
- No more age cap on traditional IRA contributions. You can now contribute to a traditional IRA at any age, as long as you have earned income.
- RMDs now start later. The SECURE Act raised the RMD starting age from 70½ to 72 — and SECURE 2.0 later raised it further, to age 73 for those born between 1951 and 1959, and age 75 for those born in 1960 or later.
- Part-time workers can join company retirement plans. Employees age 21+ who work 500+ hours a year over three consecutive years are now eligible to participate.
- Clearer income projections. Employers must provide annual statements estimating what a participant’s retirement plan balance would translate to as monthly lifetime income.
- Easier access to lifetime income annuities within employer retirement plans, including the ability to transfer them without penalty if a plan changes providers.
- Penalty-free withdrawals for a new child. Parents can withdraw up to $5,000 penalty-free for the birth or adoption of a child (regular income tax still applies).
- Relief for high medical expenses. Individuals can deduct unreimbursed medical expenses exceeding 7.5% of AGI and may withdraw funds penalty-free from qualified plans to cover them.
- 529 plans cover more. 529 plan funds can now be used for qualified student loan repayment (up to $10,000 lifetime) and registered apprenticeship program costs.
SECURE Act Provisions for Employers
The law also made it easier — and more affordable — for employers to offer retirement benefits:
- Bigger tax credits for new plans. Small businesses starting a new retirement plan may qualify for tax credits up to $5,000 per year for three years.
- Auto-enrollment credit. Employers that launch a SIMPLE IRA or 401(k) with automatic enrollment may receive an additional $500 credit for three years.
- Simplified nondiscrimination testing. Part-time employees may be excluded from certain nondiscrimination testing requirements.
- Easier multiple employer plans (MEPs). Businesses can now join MEPs regardless of industry or location.
- Reduced MEP risk. If one employer in an MEP fails to meet plan requirements, it no longer jeopardizes the other participating employers — affected assets are simply transferred to another plan.
- Higher auto-enrollment contribution cap. Safe harbor plans with automatic enrollment can now raise participant contributions up to 15% of salary, up from the previous 10% cap.
Frequently Asked Questions
What is the SECURE Act?
The SECURE Act is a 2019 federal law that changed retirement plan and IRA rules, including how non-spouse beneficiaries inherit IRAs, when RMDs must begin, and how employers can offer retirement benefits.
What is the SECURE Act’s 10-year rule for inherited IRAs?
Most non-spouse beneficiaries must withdraw all assets from an inherited IRA within 10 years of the original owner’s death, rather than stretching distributions over their own lifetime. If the original owner had already started RMDs, annual withdrawals are generally required during that 10-year window.
At what age do RMDs start now?
RMDs now begin at age 73 for those born between 1951 and 1959, and age 75 for those born in 1960 or later, under SECURE Act and SECURE 2.0 changes.
Who is exempt from the SECURE Act’s stretch IRA elimination?
Surviving spouses, disabled or chronically ill beneficiaries, minor children of the account owner (until adulthood), and beneficiaries less than 10 years younger than the original owner are exempt from the 10-year rule.
How can I reduce the tax impact of the new inherited IRA rules?
Common strategies include revisiting beneficiary designations, converting traditional IRA assets to a Roth IRA over time, and coordinating withdrawals with your overall tax and estate plan.
Talk to a Fee-Only Fiduciary About Your SECURE Act Strategy
The SECURE Act changes created real planning opportunities — and real risks — depending on the size of your IRA and who you’ve named as beneficiaries. If you haven’t reviewed your retirement and estate plan since these rules took effect, now is the time.
The Art and Science of Successful Planning is a fee-only fiduciary financial planning firm based in Fort Myers, Florida, serving clients throughout Southwest Florida. Contact us today to schedule a review of how the SECURE Act affects your IRA, retirement accounts, and estate plan.
