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The SECURE Act – What You Need to Know
By Nancy B. Crowley, CPA
On December 20th the SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed into law. Primarily, the Act focused on changes to retirement laws, but also included certain expiring tax provisions. Below are the provisions of the new law that you may find relevant to your own retirement planning:
- Required Minimum Distribution Age: The Required Minimum Distribution Age for the first mandatory 401(k) or IRA distribution has gone from age 70½ to age 72. The initial minimum distribution requirement is like the old law in that you have until April 1st of the year following the year that you turn 72 to take your first required minimum distribution. Similar to the old law, you will need to take a second distribution for having turned age 73 in the same year. The new law only applies to those individuals who turn 70½ in 2020 or later.
- IRA Contribution Age: The age for making IRA contributions was previously cut off at age 70½. That restriction no longer applies, and IRA contributions may now be made at any age provided that an individual has earned income to contribute to an IRA.
- Qualified Charitable Distributions: There is no change to the age at which an individual may make a Qualified Charitable Distribution of up to $100,000 from their IRA as that remains at age 70½ and older. Interesting to note, this means that if you make a Qualified Charitable Distribution at age 70½, you will not reduce your required minimum distribution as you no longer are required to take a minimum distribution until age 72. Instead, you are making a pre-tax contribution from your IRA.
- Inherited IRAs: The provisions pertaining to inherited IRAs has significantly changed with the SECURE Act. Previously, non-spousal designated beneficiaries inheriting an IRA could stretch their required minimum distributions over their life expectancies. This remains true for IRAs inherited from an individual who passed away prior to January 1, 2020.
Under the new law, if the retirement account owner passes away in 2020 and beyond, non-spousal beneficiaries will have 10 years to draw down the entire retirement account. The account distributions may be made in any manner over the 10-year period provided the account is fully liquidated by the end of the 10 years. In addition to spousal beneficiaries, there are four exceptions to the 10-year rule: 1.) disabled beneficiaries; 2.) chronically ill beneficiaries; 3.) individuals not more than ten years younger than the decedent; and 4.) certain minor children.
If you have any questions about the SECURE Act and how it may impact your retirement planning, please contact your RINET advisor.