The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law on December 20th, 2019, by President Donald Trump and was effective on January 1st, 2020. The Act introduces many tax law changes and is the most significant retirement-related legislation in almost 15 years. Here are a few of the more salient provisions:
Required Minimum Distributions: Previously, an individual would have to start taking Required Minimum Distributions (RMD) from their retirement account at age 70 ½. The Act has increased the RMD to age 72. These changes apply to anyone who has reached age 70 ½ in 2020 and beyond. Calculating your RMD for the first year can be tricky, so let us know if we can help.
Our two cents: An additional 1 ½ year of tax deferral is a good thing.
IRA Contributions past 70 ½: The bill allows anyone still working and earning income to contribute to their IRA past the age of 70 ½.
Our two cents: If you generate earned income after age 70 ½, this change could generate a valuable above-the-line tax deduction of up to $7,000.
Stretch IRAs: Stretching the RMD with an inherited IRA to the life span of a non-spouse beneficiary has been a popular tactic to keep funds tax-deferred longer. However, this rule has been eliminated, and any non-spouse beneficiary who inherits an IRA after December 31st, 2019, will no longer be able to have this option. Instead, they will have a maximum of 10 years from the original owner’s death date to liquidate the account. This does not apply to a surviving spouse or someone who is a minor, disabled, chronically ill, or no more than 10 years younger than the owner. Also, minors are exempt from this change until they reach the age of majority in the state they live in when the 10-year period starts. The “stretch” strategy does not apply to any existing IRAs, which are grandfathered in.
Our two cents: This is a major tax planning negative, especially for large IRAs/401(k)s that name child, grandchildren, siblings, or any other non-spouse as a beneficiary (charities are ok). This is the end of the Stretch IRA concept.
These are just some important and relevant highlights of the SECURE Act that may impact your retirement and estate plan. We are here to guide you through these changes and the ensuing complexity. So if you have any questions, don’t hesitate to contact us.