The New SECURE Act

Although the House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019, it was not expected to become law anytime soon. However, as so often happens in Washington D.C., the legislation was tucked into the 2020 spending bill and unexpectedly signed in December.

Cleverly called the SECURE Act, it brings several notable changes to retirement planning that are important to note.

The Required Minimum Distribution age has been pushed back to age 72 from the somewhat awkward 70.5 age. Anyone turning 70.5 in 2020 or beyond may now wait until age 72 to begin required distributions. To make it extra simple, those born on or before June 30, 1949 must begin distributions at 70.5. Those born after may relax until age 72.

There is no longer an upper age limit for IRA contributions as of January 1st. Now anyone with earned income can put away some of that into a traditional IRA or a Roth, if you meet the income limitations. It’s entirely possible to make IRA contributions and mandatory IRA withdrawals in the same year. How fun.

The Stretch IRA opportunity for non-spouse heirs to “stretch” inherited IRA withdrawals over their own lifetimes has been removed. This is a disappointment for many who hoped that younger beneficiaries would have ample years to drawdown a tax-sheltered account. Previously heirs made required annual distributions based on their own (usually longer) life expectancy. Now heirs must withdraw the entire IRA value within 10 years. There are few exceptions to the 10-year rule. Poor planning here could see beneficiaries forced to take larger distributions, resulting in higher taxes, depending on the situation.

Please get in touch with any questions about how you may benefit or be affect by the new law.

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