The SECURE Act stands for the establishment of every community for the improvement of retirement. It was incorporated into the law on December 20, 2019 and most provisions came into force on January 1, 2020. Legislation mainly focused on improving options and entitlement to retirement benefits. A major change, which may not be viewed positively, is the removal of the line IRA (for some types of beneficiaries). I will highlight some important changes from this law that could affect you.
First, the age for required minimum distributions (RMDs) has been extended to 72. Previously, RMDs started at the age of 70½ years. This is a great adjustment as tax planning takes longer before RMDs when income is higher. For example, you could do more years of Roth conversions with a lower tax bracket. You have more time to make long-term capital gains at lower tax costs. Keep in mind that nothing will change for you when you reach the age of 70½ in 2019 and your RMDs have already started.
Although the age for RMDs has changed, the age for qualified non-profit distributions (QCDs) has not changed. If you are 70 ½ years old and nonprofit, you can still make donations from your IRA and exclude the amount donated by your AGI (to a certain extent).
As mentioned earlier, a major change to the SECURE Act is the treatment of inherited IRAs. Previously, it was possible to extend the distributions of an inherited IRA over the lifetime of the beneficiary. This is usually referred to as a stretch IRA. Now inherited IRAs must be distributed within 10 years unless the beneficiary is: a spouse, a minor, disabled, chronically ill, or the beneficiary’s age is within 10 years of the deceased’s age. What does this mean for everyone who does not fall into the categories listed? This means that beneficiaries may have to pay more tax because the distributions could push them into higher tax brackets (there are fewer years to make distributions to make the distributions larger). If a stretch of IRA was part of your estate plan, we recommend that you visit us and possibly your estate planning lawyer. Depending on your goals, a better strategy may be available.
Here are some other positive changes from this law. There is no maximum age to contribute to an IRA – as long as you or your spouse are still working. If you are a PhD student, the definition of remuneration has been expanded to make it easier for you to save for retirement. From 2021, as a part-time employee, you will have better access to a 401 (k) through your employer.
Contact us to learn more about the SECURE Act and its relevance to your financial situation.
Hannah Szarszewski is a Certified Financial Planner (TM) who helps clients with retirement and other financial issues. To learn more about her background and Keener Financial Planning’s approach, please visit the Interview Hannah page.
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