SECURE Act Final Regulations and Planning Considerations

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Estate planning is often considered daunting, but the SECURE Act Final Regulations for 2025 provide much-needed guidance for individuals and families. These changes bring clarity while presenting new opportunities and challenges for managing retirement accounts. By understanding these regulations and leveraging strategic planning, you can better secure your financial future and maximize the benefits available to you.

This blog explores the SECURE Act Final Regulations in detail, focusing on the Required Beginning Date (RBD), changes to beneficiary designations, and key planning opportunities to help individuals and families better manage their legacies. Here’s what you need to know.

SECURE Act Final Regulations Offer Guidance

With the SECURE Act Final Regulations officially effective as of January 1, 2025, the landscape of retirement and estate planning has shifted significantly. These changes provide much-needed rules for required minimum distributions (RMDs) while establishing deadlines and new beneficiary categories for inherited retirement plans.

Regulations Went Into Effect on January 1, 2025

• The final rules outline specific timelines and processes for managing retirement accounts after the account holder’s death. These updates aim to make compliance clearer for all involved while also placing a renewed focus on the timing of distributions.

Death Before or After the Required Beginning Date (RBD) Matters More Than Ever.

• The Required Beginning Date the date at which retirement account owners must start taking RMDs—has become a critical factor in determining how and when beneficiaries can take distributions. The distinction between dying before and after the RBD now has major implications for tax and estate planning. For Example:
  • 1. If an account owner dies before reaching the RBD, their adult children have more distribution flexibility and can choose to take distributions over a 10-year period without being subject to annual required minimum distributions.
    2. If an account owner dies after the RBD, their adult children must continue taking the RMDs based on the owner’s schedule on a yearly basis, and the remaining balance in the account must be fully depleted by the end of the 10^th year.

Post-12/31/19 Deaths Face New SECURE Act Rules

• For those who passed away after December 31, 2019, the SECURE Act requires most beneficiaries to withdraw inherited retirement accounts within 10 years. Exceptions apply for certain categories of beneficiaries, but the days of extended tax deferral through stretch IRAs are largely over.

Grandfathered Stretch Rules for Pre-12/31/19 Deaths

• If a participant passed away before December 31, 2019, their beneficiaries were grandfathered into the old stretch-IRA rules. This means they can continue taking distributions over their life expectancy, spreading out the tax burden.

RBD Becomes a Moving Target

Determining the RBD—and, by extension, the distribution timeline—is more complex than it seems.

Changes to RMDs

• The age for RMDs has increased to 73 in 2025 and will rise further to 75 by 2033.

Age Isn’t the Only Factor

• While age plays a significant role, it’s not the sole determinant for the RBD. The type of retirement account—whether an individual retirement account (IRA), 401(k), or Roth IRA—can have its own applicable RBD.

Different RBDs for Different Accounts

• For traditional IRAs, the RBD is generally tied to the account holder’s age. However, employer-provided plans (like 401(k)s) may have their own RBDs depending on whether the account owner is still working.
• Roth IRAs, on the other hand, are exempt from lifetime RMDs, which further differentiates them from other accounts. Inherited Roth IRAs follow the same RMD rules as traditional IRAs. However, withdrawals from an Inherited Roth IRA are typically tax free if the Roth IRA account has been open for at least five years.

These varying timelines mean that individuals and families must carefully assess each account to avoid penalties and maximize tax efficiency.

Beneficiary Type Matters

The SECURE Act introduced new categories of beneficiaries, each with different requirements for how and when distributions must occur. Understanding these distinctions is essential for proper planning.

Eligible Designated Beneficiaries (EDBs)

• These beneficiaries receive the greatest flexibility. EDBs include the account holder’s surviving spouse, minor children (up to age 21), disabled or chronically ill individuals, and beneficiaries who are less than 10 years younger than the account holder. For EDBs, annual RMDs are still allowed over their life expectancy.

Individuals Who Don’t Qualify as EDBs

• Regular designated beneficiaries, such as adult children, are subject to the 10-year rule. They must fully withdraw the account by the end of the 10th year following the account holder’s death, without the option for extended annual distributions.

Non-Designated Beneficiaries

• If the account lacks a designated beneficiary (for example, if the account is left to an estate), the rules are even stricter. These beneficiaries must withdraw the entire account within 5 years if the account holder died before their RBD or over a ghost life expectancy (the deceased IRA owner’s remaining single life expectancy) if the account holder died after their RBD.

Trusts and Retirement Accounts

• Special considerations arise when trusts are named as beneficiaries. Trusts may now qualify as Eligible Beneficiaries under more specific circumstances but are often subject to the same 10-year distribution rule.
  • 1. See-Through trusts can be either conduit trusts or accumulation trusts. These trusts can still be used to stretch distributions over the life expectancy of the oldest beneficiary if they qualify as Eligible Designated Beneficiaries.
    2. Conduit trusts ensure all distributions pass directly to beneficiaries, keeping the 10-year rule in mind. This can be beneficial for ensuring the trust complies with the RMD rules while providing the beneficiaries with immediate access to the funds, avoids the risk of beneficiaries taking a lump-sum distribution, and provides a level of control over how the assets are managed and distributed which is especially beneficial if the beneficiaries are minors or have special needs.
    3. Accumulation trusts allow the trustee to retain distributions within the trust. This can provide more control over the timing and amount of distributions to beneficiaries which can be useful for tax planning, preserving wealth, protecting assets from creditors, and addresses concerns about the ability of a beneficiary to manage a significant sum of money.

Potential Penalties

Under the SECURE Act 2.0, there have been significant changes to the penalties related to Required Minimum Distribution.

Reduced Penalty for Missing RMDs

• The penalty for failing to take an RMD has been reduced from 50% to 25% of the RMD amount not taken.

Further Reduction for Timely Correction

• If the missed RMD is corrected in a timely manner the penalty can be further reduced to 10%. To qualify for this reduction, the account owner must withdrawal the missed RMD amount and submit a corrected tax return within two years.

Planning Opportunities

Despite its challenges, the SECURE Act Final Regulations open the door to several key planning opportunities that can help maximize tax savings and enhance your legacy.

Qualified Charitable Distributions (QCD)

• Taxpayers age 70½ or older can make up to $108,000 in charitable distributions directly from their IRAs in 2025. These distributions count toward RMDs and can help reduce taxable income while supporting charitable causes.

Expanded Definition of “Child” for Minor Protections

• The updated definition of “child” now includes minor stepchildren and certain foster children. This expanded coverage ensures broader protections for young beneficiaries, allowing distributions to be stretched until the youngest child reaches age 21, followed by the 10-year rule.

Charity as Remainder Beneficiary of Special Needs Trusts

• The regulations allow taxpayers to name a charity as the remainder beneficiary of a special needs trust. This strategy combines supporting loved ones with giving back, while also maximizing tax benefits.

Delayed Deadlines for Trusts with Multiple Minor Children

• If a retirement account is left in trust for multiple minor children, the distribution timeline can be delayed until 10 years after the youngest child reaches age 21. This provides additional flexibility for managing the inheritance while addressing the unique needs of each beneficiary.

Trusts can be used to manage the tax impact of distributions

• Trustees can carefully plan the timing and amount of distributions to potentially minimize the overall tax burden on the trust and its beneficiaries.

Next Steps with the SECURE Act Final Regulations

The SECURE Act Final Regulations may seem complex, but with the right planning, they offer significant opportunities to optimize retirement and estate planning strategies. Whether you’re considering QCDs, redefining beneficiary designations, or navigating the nuances of RBDs, understanding the updated regulations is the key to making informed decisions.

By aligning your financial goals with these new rules, you can ensure a more secure future for both you and your loved ones. Our experienced professionals at Wiss are here to help. Reach out today for personalized advice and to explore the strategies that work best for your specific needs. A well-thought-out estate plan is one of the greatest gifts you can offer to the next generation.

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