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  • Joshua B. Beisker

What the SECURE Act Means for Savers & Retirees

SECURE ACT ENACTED


On December 20, 2019, President Trump signed into law the Setting Every Up Community for Retirement Enhancement (SECURE) Act, which was incorporated into the Further Consolidated Appropriations Act.


The SECURE Act makes significant changes to the tax rules applicable to qualified retirement plans and IRAs.  


Some of the key changes include:


  • Deferring of the commencement of required minimum distributions until age seventy-two (72)

  • Requiring payouts after the death of an account holder to be completed within ten (10) years of death, with some exceptions




INCREASING THE REQUIRED MINIMUM DISTRIBUTION AGE — AND THE CONTRIBUTION AGE


Previously, qualified account holders such as those with a 401(k) or IRA had to withdraw required minimum distributions (RMD) in the year they turned age 70.5.


The SECURE Act increases that age to 72.  Further, the bill eliminates the maximum age for traditional IRA contributions, which was previously capped at 70.5 years old.


Note

Americans who turned 70.5 years old in 2019 will still need to withdraw their required minimum distributions this year, and failure to do so results in a 50% penalty of their RMD. 


People who are expected to turn 70.5 years old in 2020 will not be required to withdraw RMDs until they are 72.




REPEAL OF STRETCH IRAS


RMDs have changed for non-spousal account inheritors.  Under the old law, beneficiaries who did not inherit their accounts from a spouse were (in some cases) allowed to withdraw RMDs for the span of their lives.  The amount of the distribution is calculated based on various factors, including life expectancy and beneficiary age.  The SECURE Act now requires beneficiaries to withdraw all assets of an inherited account within ten (10) years. There are no RMDs within those ten (10) years, but the entire balance must be distributed after the tenth (10th) year.


Note

There are five classes of “eligible designated beneficiaries” who are exempt from the 10-year post-death payout rule and can still stretch RMDs over life expectancy. These include:

  1. Surviving Spouses

  2. Minor Children; however, it should be noted that an individual shall cease to be a minor child on the date the individual reaches majority, and any remainder of the portion of the individual’s interest shall be distributed within 10 years after such date.

  3. Disabled Individuals

  4. The Chronically Ill

  5. Beneficiaries not more than ten (10) years younger than the IRA owner.


With the passage of the SECURE Act, it would be prudent for individuals to contact their estate planning counsel for the purpose of reviewing and possibly updating their estate planning strategy as it pertains to the dispositions and distributions of their retirement and IRA accounts and plans.


As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.