The SECURE Act brings several changes to retirement planning, but two will have broad reaching effects for both Medicaid planning and estate planning, starting January 1, 2020.
First, the age at which an individual must take Required Minimum Distributions (RMD) will be increased from 70½ to 72. IRAs are not considered countable assets in the context of Medicaid eligibility in Texas – so long as the accounts are in RMD status. This means that if the individual is taking the mandated withdrawals, HHSC will not consider those funds as part of the individual’s $2,000 resource limit. This change adds another year and a half before the funds will be protected, while still allowing seniors to qualify for long-term nursing care.
Second, retirement benefits will now need to be paid out over the course of ten years, rather than over a beneficiary’s life expectancy. Under the old regime, inherited retirement funds could be “stretched” over the course of a beneficiary’s life, resulting in lower annual distributions to the beneficiary. Because many beneficiaries were inheriting these funds during peak earning years, the smaller annual distribution resulted in a smaller income tax hit. Now that the funds must be paid out in the course of a decade, recipients could see their tax brackets change.
Further study of the bill and its implication are needed, but its passage makes this New Year an even better time to re-visit existing plans. Or to develop a plan in the first place.