SECURE Act – Retirement rule change
The Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act, was signed into law on Friday, December 20. This was a sweeping legislative reform that could impact your retirement plan. In my opinion, the SECURE Act is not a beneficial change for many of my clients. What it is gives with one hand, it takes away with another.
Here are the three provisions that matter most to anyone with an IRA.
- Required Minimum Distributions (RMDs) Will Start at Age 72, not 70½
Starting January 1, 2020, the age increased to start a RMD from age 70 ½ to age 72. If you turned 70½ in 2019, then you will still need to take your RMD for 2019 no later than April 1, 2020. If you are currently receiving RMDs because you are over age 70½, then you must continue taking these RMDs. Only those who will turn 70½ in 2020 or later may wait until age 72 to begin taking required distributions. - You Can Contribute to Your Traditional IRA After Age 70½
Beginning in the 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 70½ and beyond, provided you have earned income. You still may not make 2019 (prior year) traditional IRA contributions if they are over 70 ½. - Inherited Retirement Accounts
This is the most notable change resulting from the SECURE Act. The law eliminated the “stretch” provision for most (but not all) non-spouse beneficiaries of inherited IRAs and other retirement accounts. Now upon death of the account owner, distributions to individual beneficiaries must be made within 10 years. The government is now going to be able to get their taxes sooner. 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.
This was the second major Congressional action within the last few years. It’s a good reminder that the rules of the game can change at any time. I recommend that you should take advantage of the rules that are in your favor before the government has a third major overhaul. The Roth IRA is the best retirement deal that the U.S. Government can give you. There is no better investment account than one that grows tax-free. I wouldn’t be surprised if the rules of the Roth IRA was eventually changed as well. The backdoor Roth IRA right now is a legal way to get around the income limits for normally restrict high-earners from contributing to Roths. This loophole could eventually be closed.
As for Social Security, I don’t see any sweeping changes in the near term. I anticipate that at some point the retirement age to claim Social Security benefits will be moved to 69 or 70. If you have any questions regarding how these rule changes will impact your retirement plan, please feel free to send me an email or give me a call to discuss the change.
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