The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was a bipartisan effort to create a better retirement for Americans was passed on Dec. 20th, 2019 and signed into law by President Trump. This has major implications for retirees and their beneficiaries in the coming years.
Here are the major changes created by the new law.
Required Minimum Distributions (RMDs) Will:
- Start at Age 72, not 70 1⁄2
- Starting January 1, 2020, you will need to start withdrawing money
- from your traditional IRA at age 72, a change from the current
- withdrawal requirement of age 701 ⁄2.
If you turn 701⁄2 in 2019, you will still need to take your RMD for 2019 no later than April 1, 2020. If you are currently receiving RMDs (or should be) because you are over age 70 1⁄2, you must continue taking these RMDs. Only those who will turn 701⁄2 in 2020 or later may wait until age 72 to begin taking required distributions.
Individuals Can Contribute to Their Traditional IRA After Age 70 1⁄2
Beginning in the 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 701⁄2 and beyond, provided you have earned income. You still may not make 2019 (prior year) traditional IRA contributions if you are over 70 1⁄2.
Inherited Retirement Accounts
Upon death of the account owner, distributions to individual beneficiaries must be made within 10 years. There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the account owner. Minor children who are beneficiaries of IRA accounts also have a special exception to the 10-year rule, but only until they reach the age of majority.
The new law allows penalty-free withdrawals from retirement plans for birth or adoption expenses, up to certain limits.
The major change is the Inherited RMD rule. An adult beneficiary will have to empty out (to pay taxes) on an entire IRA within 10 years. This makes us at Grand Capital Management dependent on our frontal lobes to mitigate that event. There will be more clarification on the topic as we siphon through what we can and cannot do with the new change, but for now this is enough for you to know that you are not alone when inevitable changes arise.