SECURE Act Highlights
On December 20, 2019, as part of an end-of-year spending bill, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed. While there are a variety of changes this piece of legislation brings, many of our clients want to know how it affects them in regards to their IRAs and required minimum distributions (RMDs). Here are the highlights for IRA owners:
- IRA owners who turn 70½ AFTER December 31, 2019, can delay mandatory distributions until age 72, allowing for an additional 1½ years of tax-deferred growth. If you turn 70½ in 2019, you will NOT be grandfathered and must take your RMD by April 1, 2020.
- For contributions, the previous cap of age 70½ is lifted and you may now contribute to a traditional IRA if you work beyond age 70½, so long as you are otherwise eligible to make a contribution. Roth IRA contribution rules, qualifications, and income limits were not changed.
- Beginning January 1, 2020, non-spouse beneficiaries are required to fully distribute retirement plans and IRAs (including Roth IRAs) within 10 years of the plan participant or IRA owner’s passing. The ability to stretch RMDs over the beneficiaries’ lifetimes has been eliminated. There are some exceptions to this general rule, particularly if a non-spouse beneficiary is disabled, chronically ill, or not more than 10 years younger than the deceased IRA owner. The exception only applies to minors until the child reaches the age of majority, at which time the 10-year rule is in effect. For a more detailed discussion on the SECURE Act’s impact on the stretch IRA, please see our article in the August 2019 Financial Planning Focus Newsletter.
The SECURE Act did not affect qualified charitable distributions (QCDs). IRA owners who are 70½ or older can give up to $100,000 from a traditional IRA to one or more charities and exclude the donated amount from their taxable income.
This is a very high level overview of changes to IRAs in the SECURE Act, which impacts other areas of retirement savings including allowing penalty-free withdrawals from IRAs and other retirement plans for the birth or adoption of a child, 401(k) eligibility for part-time workers, improved credits for new 401(k) plans, and enhanced auto-enrollment features for 401(k) plans.
Please contact us if you would like to discuss any of the changes in greater detail.
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. Certain information contained herein was derived from third party sources and has not been independently verified. While the information presented is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. This information is not intended to be tax advice and, because each individual’s tax situation is different, we encourage you to consult with us and/or a qualified tax professional about the effects of the SECURE Act on you and the best response to it for your tax situation.