The SECURE Act and Settlement Planning

John Darer • January 31, 2020

"Here's Looking At You Kiddie" and the New "Rule of 72"

Kiddie Tax

What is The Secure Act?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in December 2019, includes many bi-partisan reforms that increase access to workplace plans and expand retirement savings. Generally, the retirement legislation includes policy changes that will impact defined contribution (DC) plans, defined benefit (DB) plans, individual retirement accounts (IRAs) and 529 plans. But there are a couple of areas where the SECURE ACT may intersect with personal injury settlement planning in addition to planning  for certain non-personal injury claimants and financial planning for lawyers. January 1, 2020 was the effective date for most of the provisions of the SECURE Act.

Kiddie Tax Rates under TCJA Repealed

What is The Kiddie Tax Rule?
The so-called Kiddie Tax originated in the Tax Reform Act of 1986, P.L. 99-514, as a solution to counter a popular tax-saving strategy for high-income families of funneling their unearned income through their children to reduce their overall taxes in the 1980s. The Kiddie Tax served to limit the effectiveness of parent-children income shifting, by taxing certain amounts of children's unearned income at a very high rate.

What Does The Repeal Mean?
The SECURE Act repeals the draconian application of trust tax rate schedule to unearned income of a minor that was charged pursuant to the Tax Cuts and Jobs Act of 2017. The quick ramp up in trust tax rates saw the 37% rate applied at $12,950 for 2020.  But a single taxpayer or single and head of household in 2020, would not reach that level until an income level of $518,401 taxable income levels.  Moreover a married couple , filing jointly would not reach that level until reaching taxable income of $622,051. Prior to TCJA unearned income above a certain threshold was taxed at the parent or parents'  (as applicable) marginal tax bracket. The repeal restores the prior methodology. 

The kiddie tax rule found at IRC § 1(g), means (again) "taxes certain unearned income of a child at the parent's marginal rate, no matter whether the child can be claimed as a dependent on the parent's return".

What Does Unearned Income Mean?
Unearned income for purposes of the Kiddie Tax means income other than wages, salaries, professional fees, and other amounts received as compensation for personal services. So among other things, unearned income includes capital gains, dividends, and interest.

How do structured settlements help mitigate kiddie tax issue?

Where minor dependents are receiving structured settlements that represent damages on account of physical injury, physical sickness or wrongful death, the payments are income tax free.  They are not part of kiddie tax calculations.   Therefore an allocation to structure may be helpful.

New "Rule of 72"  | Require Minimum Distribution Start Date Extended

Instead of having to begin withdrawing money from retirement plans at age 70.5, the plaintiff can continue to defer for an additional 18 months to age 72 before withdrawals must begin. Deferring gives an opportunity to earn more tax deferred growth.  The amount you must withdraw is determined by dividing the balance of each qualifying account by your life expectancy as defined by the IRS. A tax-free payment stream from a personal injury or wrongful death structured settlement could help the plaintiff better "afford" to defer the start of taxable income.  Widows and widowers, older children survivors in a wrongful death case, older claimant in general may benefit the most from this new opportunity. If you're in decent health and have good longevity in your family, you can also use a structured settlement payment stream to delay taking social security until 70 to maximize your benefit. 

The SECURE Act also eliminates stretch IRAS, which allowed the inheritance of an IRA that could then be stretched over the beneficiary's life expectancy. Beginning with deaths of 401k and pension plan participantswners or IRA ownersplan participants or IRA owners in 2020, distributions must generally be taken over the following 10 years.

Deferring gives an opportunity to earn more tax deferred growth.

most infomative structured settlement websites
By John Darer August 26, 2025
The 4structures.com website is one of the most comprehensive structured settlement resources, particularly for those who want detailed, expert-level information, according to Google AI
most informative
By John Darer August 22, 2025
Based on Grok's review of prominent sites as of August 2025, 4structures.com (including its associated blog at structuredsettlements.typepad.com) stands out as the most comprehensive. Run by structured settlement expert John Darer, it offers detailed guides, and specialized insights
fountain
By John Darer August 17, 2025
Retained asset accounts for life insurance beneficaries, are temporary accounts that earn interest, give you time to breathe and give you time to figure it out.. Retained asset accounts are pay nterest from the date of death to date of settlement of the claim as a general practice,
knuckles
By John Darer August 16, 2025
How to avoid a "Knuckles Sandwich" when entering into settlement of claims or lawsuits involving taxable damages, or elements of taxable damages. What is the intent of the Payor? What happens if the intent of Payor is not clearly set forth in the settlement agreement?
structured  settlements
By John Darer August 15, 2025
Structured settlement annuity issuers have stood the test of time, which is crucial if you're depending on them to pay you stable income for a long time or the rest of your life or pay your beneficiaries . For Structured settlement annuities . Call John Darer at 888-325-8640
New Y
By John Darer August 14, 2025
While rising yields have narrowed the gap for defendants in New York CPLR 50A and 50B projections, plaintiffs can still " fly inverted" and get plenty of "lift" when negotiating settlements by using savvy settlement experts
baseball caps of many colors
By John Darer July 29, 2025
The cap rate on index linked structured settlement annuities is a limit set by the insurance company on the maximum interest rate that can be credited to the annuity based on the performance of the underlying index that also helps provide the downside prtection..
longevity road
By John Darer July 28, 2025
Do your financial resources give you enough road, or will the road run out before you do? A structured settlement annuity helps mitigate the risk of outliving your savings, no matter how long you live. A structured settlement can inlcude one or more customized payment streams and types.
USAA structured settlements
By John Darer July 16, 2025
USAA Life Insurance Company, an A++ rated insurance company, issues structured settlement annuities with 1%, 2% and 3% COLAs. USAA Life structured settlements are exceptionally compatitive on lifetime benefit payments with long duration certain periods for ages under 35.
MetLife Structured Installment Sales Now Available in New York
By John Darer July 8, 2025
Owners of highly appreciated NY businesses or NY real estate may benefit from a structured installment sale tax deferral program as an alternative to a 1031 exchange. MetLife's structured installment sale program is now available in NY and in all 50 states. Call 888-325-8640 for more info
More Posts