Page 51 - February 2020 FOP Magazine

How does the new SECURE Act affect you?
On Jan. 1, the SECURE Act became law. This new law will affect most retirement plan and IRA participants.
Changes that affect you now
The age limit is removed for contribu- tions to traditional IRAs.
FOP
Benefits Plan
Living trusts
At the end of your life, or if you become incapacitat- ed, if you have property or bank accounts in your name, they are at risk of probate:
• A will must be probated. The rule is that no one can legally sign your name. Therefore, at your death or incapacity, all assets in your name are subject to the full probate process, which averages 18
months and is costly.
A living trust completely avoids probate.
A living trust estate plan includes both healthcare and fi- nancial power of attorney documents, a last will and testa- ment for guardianship of minor children and to pore over any assets still in your name at your death, out of probate.
TOM TUOHY
Before the SECURE Act, you were required
to stop making contributions at age 70.5. Howev- er, now you can continue to make contributions as
long as you meet the earned-income requirement.
Also, as part of the act, you are mandated to begin taking re- quired minimum distributions (RMDs) from a traditional IRA
at age 72.
This RMD is an increase from the previous age of 70.5. Con-
sequently, allowing money to remain in a tax-deferred account for an additional 18 months (before needing to take an RMD) may alter some previous projections of your retirement income.
The SECURE Act’s rule change for RMDs only affects Amer- icans turning 70.5 in 2020. For these taxpayers, RMDs will be- come mandatory at age 72. Therefore, if you meet this criterion, your first RMD won’t be necessary until April 1 of the year after you reach 72.
Changes that affect your estate plan
Before the new law, a non-spouse beneficiary could stretch out the payments over his or her expected lifetime. Now, the full distribution must be made by the end of the 10th calendar year following the year of the account owner’s death.
There are limited exceptions:
• A beneficiary who is the participant’s spouse
• A child under the age of majority (18)
• A disabled or chronically ill person
• A beneficiary that is within 10 years of the participant’s age
This new distribution rule is especially crucial if the benefi- ciary of your defined contribution plan is your living trust and your ultimate beneficiary in your trust does not fall into one of the above exceptions.
For instance, your intention might have been to shield your child or another beneficiary by securing the beneficiary funds in your trust after your death for a specified time for creditor protection. On the other hand, you may wish to ensure that the beneficiary does not withdraw all the funds at once. However, payments now must be made within 10 years of your death. Insurance as an option
If you wish to leave funds in trust for the benefit of your chil- dren and are older than 28, you should consider naming your living trust as the beneficiary in a tax-free insurance policy.
For example, you could accomplish this by using the with- drawals from your deferred comp or IRA to purchase the in- surance policy. Consequently, you can detail the specific use/ distribution of the proceeds in your living trust.
What you should do now
You should review your primary and contingent beneficiary designations in your defined benefit plans and estate plan/liv- ing trust.
Importantly, evaluate the reasons for naming your living trust as beneficiary. Above all, consult your attorney, accountant and financial planning advisor. Advanced planning can make all the difference.
• •
Call my office today to lock in your FOP 50 percent reduced rate for a living trust.
Registration in the Benefits Plan for FOP members and fam- ily is free. For assistance, visit www.fopbenefitsplan.com or call 1-866-729-5454.
Tom Tuohy is the founder of Tuohy Law Offices and the FOP Benefits Plan. He has been a police lawyer for 37 years. His fa- ther was a CPD detective, and his grandfather was CPD Chief of Major Investigations. Tom can be reached at 312-559-8400. Contributor to this article: Ryan Nietert, CFP, OakCrest Capital.
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