SECURE Act opens up planning opportunities for advisers

The hypothetical has become reality. On Thursday, the Senate voted to pass the Setting Every Community Up for Retirement Enhancement Act — likely the last big hurdle for one of the most significant retirement policy reforms in decades. This week's news has been personally rewarding because I know what a positive impact the changes will have on our customers and your clients' ability to help protect their retirement.

The pen stroke that turns the SECURE Act into law won't mark the finish line but rather the starting point for advisers to begin to imagine and advise new strategies to help protect their clients' financial futures. Doing so will require quickly understanding what has changed, leveraging new opportunities and taking a fresh set of eyes to established planning strategies with new-found significance.

The new landscape

The SECURE Act will have wide-reaching effects on retirement and estate planning for most people. There are a couple of notable changes that financial advisers should know about so that they can assist clients in effectively planning for retirement in 2020 and beyond. Here are some of the most important changes:

1. Increased required minimum distribution ages. The SECURE Act changes the age for starting RMDs from 70½ to 72 for individuals who reach age 70½ after 2019.

2. IRA contributions allowed after age 70½. The SECURE Act repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70½.

3. New 10-year limitation on inherited IRAs or 401(k)s. The time frame that most beneficiaries will have to take out IRA inheritances will change from life expectancy to 10 years. This effectively eliminates the "stretch" IRA as we know it.

[More: What the SECURE Act means for annuities]​

Established strategies, new significance

These changes, as well as others that apply in more specific cases, have substantially altered the wealth transfer landscape. With the acceleration of the payout time frame under the SECURE Act, different strategies may become more useful for IRA owners and their families.

Here are four strategies that you should consider for clients after this week:

1. Family tax rate arbitrage. If an IRA owner is in a lower tax bracket than their children, consider whether the tax rate for IRA distributions for the entire family (both owner and beneficiaries) could be lowered by having the IRA owner take more from the IRA than they otherwise would while they were alive. This extra cash flow could be a source of funding for life insurance, as in the wealth replacement example below, or to start a gifting program for grandchildren, or the IRA owner could use the extra money for his or her own purposes.

[More: Advisers expect more Roth conversions under SECURE Act]​

2. Wealth replacement using life insurance. Consider recommending the IRA owner utilize the after-tax amount of their annual RMD to purchase life insurance to replace the wealth lost as a result of the accelerated income tax under the 10-year payout rule and/or lost wealth-building opportunity with the elimination of the life expectancy payout rule.

3. Tax-free RMDs with qualified charitable distributions.​ Qualified charitable distributions allow traditional IRA or Roth IRA owners who are currently over age 70½ to have their IRA custodian send up to $100,000 per year directly to a public charity. The IRA owner is not taxed on this QCD distribution, but the distribution can satisfy the owner's RMD requirement — essentially creating tax-free RMDs if done correctly.

4. Roth planning to create tax-free distributions for beneficiaries. In cases where you anticipate that a client's tax rate is likely to be higher in the future or that their rate is lower than their beneficiaries', there are a few additional Roth IRA strategies to consider. These include using annual small Roth IRA conversions over time or converting after-tax contributions to IRAs or qualified plans to Roth IRAs. This can help clients create potentially better tax treatment for their beneficiaries than distributions from pretax IRAs.

The SECURE Act will increase individuals' ability to save more for their retirement and create opportunities to generate lifetime income. It will also accelerate the payout time frame for certain beneficiaries and so presents an opportunity for IRA owners, their families and advisers to undertake thoughtful retirement income and wealth transfer planning.

[Recommended video: Ed Slott: Here's why January is the new December for charitable contributions]​

John Carter is president and COO of Nationwide Financial.