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Dr. Albert Einstein and The SECURE Act

Dr. Albert Einstein and The SECURE Act

Provided by Todd Pouliot AIF®

There is an old story of Dr. Albert Einstein when he was presenting a test to his students. One of the more observant students noticed something about his exam that was quite unusual.

“Student: Dr. Einstein, Aren’t these the same questions as last year’s [physics] final exam?
Dr. Einstein: Yes; But this year the answers are different.”

But why does this quote matter in 2020?


“SECURE” stands for Setting Every Community Up for Retirement Enhancement Act, the most comprehensive legislation since the Pension Protection Act of 2006. The Act has brought with it numerous changes. Significantly, it is estimated that the SECURE Act will affect 1 in 3 IRA account holders.

If you have not considered this legislation impactful, let me get you thinking about three issues that may lead you to reconsider your thoughts.

Beneficiary Designation

Carefully Consider who you name as a beneficiary

Who did you list as your IRA beneficiary? If you answered your children or grandchildren, or “not your spouse”, you might want to change that. Elimination of the “stretch IRA”—Stretch IRA is a term that was used to describe a technique in which a beneficiary would extend distributions from an inherited IRA over his or her lifetime. This could enable young beneficiaries to extend the payout period from an inherited IRA over decades, spreading out the payment of income taxes over a long period of time. Now, instead of stretching those RMDs out, non-spouse beneficiaries must disperse the entire value of the account within 10 years of the IRA owner’s death.

Trust as a beneficiary of an IRA

If you were using a trust as a beneficiary of an IRA or 401(k) in order to achieve creditor protection and take advantage of the stretch provisions through a “pass-through” trust, there could be a huge issue with your plan now that the SECURE Act passed. Most of these conduit or pass-through stretch trusts for IRAs were set up to pass through RMDs to the beneficiary. This means the IRA money could be held up in the trust for 10 years and then all be distributed as a taxable event in year 10. If you have a Trust, please review your plan immediately, this may be a multi-faceted fiasco.

“We’re advising clients to review and, where appropriate, modify beneficiary designations promptly,”

Cash Flow in Retirement

In the past, a quality Financial Advisor would work out a cash flow analysis to determine a withdrawal strategy. Remember, your strategy for withdrawing retirement assets is as important as your strategy for accumulating them. A thorough financial plan should illustrate, which accounts money should be taken from (Taxable, Tax-deferred, and/or Tax-free), in what order, and what conversion opportunities exist to maximize efficiency.

There are three drawdown main strategies to consider; Pro Rata, Sequential, and Sequential with Roth Conversion. Understanding that professionals used to take from taxable accounts first; then tax-deferred, and lastly tax fee as a classic approach but this may not be the best strategy post The SECURE Act in 2020 and beyond.

A customized tax-efficient distribution strategy can save you significant value and extend the time horizon of your retirement assets

“We’re advising clients to review and amend their cash-flow strategies as needed.”

Consider converting to a Roth IRA

While Roth IRAs are subject to RMDs when inherited, they typically do not cause a taxable event when distributions are taken by a beneficiary. As such, it can make a lot of sense (with lower tax rates under the Tax Cut and Jobs Act) before the owner of the IRA passes away to strategically do Roth conversions to move money from an IRA to a Roth IRA. The benefits here are threefold, as it can help a retiree:

  1. Maximize their wealth

  2. Lower taxes in retirement, and

  3. Be a huge benefit for heirs under the SECURE Act’s 10-year distribution rule.

Passing on a Roth account has typically been a chosen way to pass money to the next generation. While Roth conversions have been an option for retirees for some time, it may now be more valuable. With the SECURE Act, the delay in RMDs will likely result in larger account balances, which could mean more tax liability upon withdrawal, especially if your non-spousal beneficiaries are already in their peak earning years.

Under the SECURE Act, a Roth IRA must still be distributed within 10 years. However, since the distributions from a Roth account are tax-free, your beneficiaries can let the Roth account grow and then take the entire distribution in year 10 with no tax consequences. Now that the income schedule has accelerated for beneficiaries, it may be even more advantageous to pass along Roth assets as opposed to traditional assets.

“We’re advising clients to review and, where appropriate, modify tax planning strategies. ...analysis should include their tax bracket and tax components... this may include Roth Conversions”

Additional Thoughts

There are other issues to consider, some of which should be discussed with a CPA like how will the new RMD rules affect my tax burden? Also, consider how this will affect your Charitable Contributions. Should life insurance be obtained for the mear reason for using the death benefit to pay for my heir’s tax burden? As always consult your professionals as each individual has different planning objectives and your situation needs to be addressed to meet your goals.

Again, why does this matter?

Dr. Einstein: Yes; But this year the answers are different.” If you are not changing your Personal Financial Plan in light of the new changes, you may fail in retirement.

Financial Planning without Judgment is our motto. As a fee-only financial planner, my focus is to offer unbiased financial advice to help you achieve your life goals.

Todd Pouliot AIF® may be reached at or

Gateway Financial, LLC is registered as an Investment Adviser with the State of Ohio and in other jurisdictions where exempted.

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