Understanding the SECURE Act and IRS Regulations: What Workday Employees Need to Know for Their Retirement Planning

Healthcare Provider Update: Healthcare Provider for Workday: Workday, the leading provider of enterprise cloud applications for finance and human resources, typically partners with large health insurance carriers such as UnitedHealthcare, Anthem (Elevance Health), and Aetna to deliver healthcare benefits to its employees. These partnerships ensure that employees have access to comprehensive healthcare plans that cater to a diverse workforce. Potential Healthcare Cost Increases in 2026: As we move into 2026, employees at Workday may face significant hikes in their healthcare costs. With projections indicating premium increases exceeding 60% in some states and a potential average rise of 18% nationally, many employers, including Workday, are likely to adjust their benefits structure. This shift could result in higher deductibles and out-of-pocket expenses for employees, particularly if enhanced federal subsidies expire. Workers are encouraged to stay informed about benefit changes and strategize their healthcare spending to mitigate these impending cost increases. Click here to learn more

In December 2019, the 'Setting Every Community Up for Retirement Enhancement  (SECURE) Act ' introduced transformative adjustments to the taxation of post-mortem distributions from qualified retirement accounts. A pivotal element of these changes was the elimination of the 'stretch' provision for most non-spouse beneficiaries, replaced by the 10-Year Rule, which mandates the full distribution of inherited retirement assets within a decade of the account holder’s death. This shift directly affects Workday employees planning for or managing inheritance scenarios.

By February 2022, the IRS had released Proposed Regulations extending the impacts of the SECURE Act by imposing requirements for annual Required Minimum Distributions (RMDs) over a 10-year period for beneficiaries, provided the deceased had been subject to RMDs prior to their death. This meant that annual distributions were mandatory even during the decennial distribution period, significantly altering the landscape for taxation and estate planning. This regulation demands attention from Workday advisors to assist their colleagues effectively.

This complexity was further emphasized with the IRS’s release of the Final Regulations on July 18, 2024, which not only confirmed these stipulations but also expanded the situations in which various beneficiaries would be impacted. These regulations have strengthened the framework for both eligible and non-eligible beneficiaries, introducing nuanced rules that address scenarios ranging from undistributed RMDs at the death of an account owner to the management of inherited estates through different types of trusts. Such intricacies require careful navigation to optimize outcomes for Workday families.

Key Provisions and Their Implications

1. Post-mortem Distribution Rules:  For beneficiaries inheriting after the Required Beginning Date (RBD) of the account holder, annual RMDs are mandatory until the end of the tenth year following the death. This rule emphasizes the IRS’s stance on reinforcing tax deduction benefits previously extended through the stretch measure. Workday employees must be aware of these timelines to make informed decisions about their retirement assets.

2. Management of Undistributed RMDs:  The regulations stipulate that if the deceased had not taken their full RMD at death, any beneficiary can fulfill this obligation. This flexibility helps simplify compliance for beneficiaries managing inherited estates, which is particularly relevant for Workday beneficiaries who may be navigating these waters for the first time.

3. Specific Rules for Spouses:  A new 'hypothetical RMD' rule requires surviving spouses who first opt for the 10-Year Rule and then decide to treat the inheritance as their own account, to carry out RMDs as if the assets were still in their account. This regulation highlights the importance of careful planning by surviving spouses in managing asset rotation schedules, a critical consideration for Workday families ensuring financial stability.

4. Trusts as Beneficiaries:  The regulations outline how Passage Trusts, whether Conduit or Accumulation types, are treated under the law, specifying the beneficiaries considered for RMD calculations. This ensures that trusts designed to extend asset distributions over an extended period are meticulously structured to comply with the new rules, offering strategic insights for Workday planners.

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5. Annuities and Retirement Accounts:  Clarifications on how annuities embedded in retirement accounts are to be treated for RMD calculations highlight the management of annual payments to meet RMD obligations. These clarifications are vital for Workday employees who have invested in these financial vehicles as part of their retirement planning.

Strategic Perspectives for Financial Advisors

Financial advisors face these regulations with a deep understanding of their implications on estate planning strategies. This evolution highlights the need to review future plans and beneficiary designations to adapt to the new legal framework. Advisors are tasked with interpreting these complex rules to provide clear, strategic expertise that minimizes tax liabilities and ensures compliance while achieving clients’ long-term financial goals, which is especially pertinent for Workday advisors working with their peers.

In conclusion, the latest regulations from 2024 mark a crucial evolution in managing retirement assets post-death. By strengthening rules regarding the timing and mode of distribution, the IRS aims to ensure quicker tax remedies while allowing some leeway in certain cases. For financial advisors, staying informed about these regulations is essential to effectively assist their clients, ensuring that strategic decisions are both tax-efficient and aligned with estate management goals. As this legislation continues to evolve, it will be crucial for advisors to engage proactively and continually educate themselves to deliver the best value to their clients in this complex environment. Workday advisors are uniquely positioned to navigate these changes, providing invaluable guidance to their colleagues and families.