The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a bipartisan retirement bill that was included in a larger legislative package passed by the House of Representatives on December 17, 2019 and by the Senate on December 19, 2019. Most provisions in the law became effective January 1, 2020. This blog addresses the biggest changes.
The BIG changes
Inheriting an IRA:
For anyone who inherited an IRA from an original IRA owner who passed away prior to January 1, 2020, no changes to your current distribution schedule are required. However, for situations where the original IRA account owner passes away after December 31, 2019, fewer beneficiaries will be able to extend distributions from the inherited IRA over their lifetime. Many will instead need to withdraw all assets from the inherited IRA within 10 years following the death of the original account holder. Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent.
This change will require some investors to reevaluate their retirement and/or estate planning strategies. While some beneficiaries may qualify for exemptions to the 10-year rule, others will be required to draw down assets more rapidly than required under the now previous rules. However, it is important to note that anyone who inherited an IRA from an original account owner who passed away prior to January 1, 2020, can continue their current distribution schedule.
Required Minimum Distributions:
The new retirement law increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. The Act states that this change applies beginning with IRA account owners who will attain 70½ on or after January 1, 2020. Congress recognizes Americans are increasingly working and living longer and updating RMD rules to reflect changes in life expectancy will allow Americans to continue their retirement savings for an extended period of time.
Qualified Charitable Distributions (QCDs), can still be done at age 70 ½ even though no RMDs will be required until ages 72. This many create a lot of confusion!
New Contribution rules:
For the taxable year 2020 and beyond, the law removes the age limit at which an individual can contribute to a traditional IRA. Today, an individual cannot contribute after age 70½; the Act allows anyone that is working and has earned income to contribute to a traditional IRA regardless of age.
At the Kowal Investment Group we will work closely with you to create strategies that help manage your taxes and to take advantage of these big changes in the retirement account landscape. As time moves on investors will be taking advantage of Roth conversions, life insurance and QCDs for estate and tax planning purposes.
If you have questions about how these new retirement law changes will affect you and you’d like to set up a complimentary, no-obligation retirement review, give our office a call at 262-522-4040 or click here.
Any opinions are those of the financial advisor and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we do not render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
