This article originally appeared in Aldrich Community, a client experience offering from Aldrich Wealth.

Recently, we sat down with two long-time clients. The couple of 70-year-olds had built a prominent architecture company that positioned them to meet and exceed their retirement goals. Their success hadn’t come overnight, though. Like many of our clients, their business had always been prone to economic booms and busts. In keeping with age-old wisdom, they managed to squirrel away a portion of each and every paycheck into their IRAs.

Over the years, they let their savings grow and compound into a nest egg large enough to fund their retirement and leave a legacy for their children. With the Required Minimum Distribution (RMD) age of 70.5 just around the corner, they wanted to discuss action steps to minimize the impact on their portfolio for a few more years until they were ready to put pencils down at the drawing board and retire. Conveniently, the recent passage of new legislation created additional flexibility for them to do just that.

This past December, the Setting Every Community Up for Retirement Enhancement (SECURE) Act became law. Part of the federal government’s spending bill, the legislation includes several provisions impacting retirement savings and wealth transference. A few of these provisions directly affected our client’s plans for retirement and beyond.

The RMD age increased. Individuals who reach 70.5 after the 2020 New Year now have the option to delay taxable distributions until age 72. Participants of traditional IRAs and other qualified retirement plans can continue contributing to these accounts during this period as well.

The Stretch IRA was eliminated. Non-spouse beneficiaries (commonly children) that are more than ten years younger than the account owner must now deplete the inherited account within ten years of the death of the account owner.

The increase in the RMD age provides an excellent opportunity for our clients. With employment income in hand, they have no immediate use for the sizable distributions they previously would have been required to withdraw. Plus, the combination of the taxable distribution along with other active income would bump them into a higher tax bracket, which would be used to calculate income taxes owed each year until retirement. Now, their IRA accounts can continue to experience the market growth while we ride out the longest bull-market to-date, unencumbered by required distributions.

On the other hand, the elimination of the Stretch IRA means that we need to adjust our strategy for gifting to heirs. As previously written, the laws would have allowed our clients’ children to leverage their own life expectancies to determine distributions. This made the gifting of our clients’ IRAs an enticing tax strategy, as it provided an extended period of time for the IRA to remain tax-deferred.

The elimination of the stretch has significantly increased the tax consequence of such a gift for their children beneficiaries, potentially during the time window where their tax brackets are already at a peak. To protect their legacy, we determined that our clients should increase gifts to their heirs during the next several years to take advantage of the annual gift tax exclusion instead of leaving lump-sums via beneficiary IRA accounts.

While the new laws impacted the go-forward plan for these clients, it’s critical to note that the impacts of changes such as the ones we highlighted are different for each individual. A financial plan hinges on the unique goals, income and tax considerations, personalities, and other circumstances of its subject; thus, no two plans are exactly alike. Given that fact, it is to your benefit to initially identify what you want to achieve with your money and then allow those goals to serve as the steadfast blueprint for your plan. Aldrich Wealth’s financial planning team strives to deliver legislatively-responsive guidance and financial strategies that will help you achieve your short-term and long-term goals, no matter the external factors at play.