UNDERSTANDING KEY HIGHLIGHTS OF THIS LAW
The SECURE Act was signed into law at the end of 2019 and is meant to encourage more people to save for the long term. SECURE stands for “Setting Every Community Up for Retirement Enhancement” and expands the options and incentives available to those investing in a retirement plan. Many of these changes are already in effect, so please take note of the highlights listed below and how they affect your saving and distribution options, but also how they significantly alter how IRAs, 401(k)s, and other qualified accounts can be left to your heirs.
HERE ARE SOME OF THE MAJOR CHANGES THAT COULD AFFECT YOU
Required minimum distributions (RMDs) will now start at age 72 and not at 70½.
- Starting January 1, 2020, the new law increased the age an individual needs to start withdrawing money from a traditional IRA (or other tax qualified account) to age 72 from age 70½.
- If an individual turned 70½ in 2019, they will still need to take their RMD for 2019, no later than April 1, 2020.
- If an individual is currently (or should be) receiving RMDs due to being over age 70½, these RMDs must continue. Only those turning 70½ in 2020 (or later) may wait until age 72 to begin taking the required distributions.
Individuals can now contribute to a traditional IRA after age 70½.
- Beginning in tax year 2020, this law allows an individual to continue to contribute to a traditional IRA in the year they turn 70½ and beyond. This is possible provided the individual has earned income.
- An individual cannot make 2019 (prior year) traditional IRA contributions if aged over 70½.
“Stretch” distribution option is eliminated for many non-spousal IRA accounts.
- At the death of the account owner, distributions to non-spousal beneficiaries must be complete within 10 years. Previously these beneficiaries were able to stretch distributions over a lifetime allowing the IRA account to continue to grow tax-deferred. There are exceptions provided for spouses, disabled beneficiaries, and beneficiaries no more than 10 years younger than the deceased.
- Beneficiaries of IRA accounts who are minors are also excepted from the 10-year rule, but only until they reach the age of majority.
New withdrawal option for adoption or birth expenses is introduced.
- This new option allows penalty-free withdrawals from retirement plans for birth/adoption expenses up to certain limits and time frames.
Speak to one of our advisors about how these changes could impact your retirement options. In particular, those individuals planning on leaving IRA and/or qualified assets to family members other than their spouse (children, grandchildren, etc.) need to understand and very likely re-think this action from a planning perspective.