Your Retirement Account – Key Implications of the SECURE Act
On Friday, December 20, 2019 the Setting Every Community Up for Retirement Act (the SECURE Act) was signed into law and many of its provisions went into effect on January 1, 2020.
The following are the key implications of the secure act:
Traditional IRA Contributions Allowed after Age 70 ½
- Until now, an individual could not contribute to a traditional IRA if he or she reached age 70 ½ or would reach age 70 ½ by the end of the year for which the contribution is made. Beginning in 2020, this limitation is repealed. Contributions of earned income are now permitted.
- Unlike a traditional IRA, an individual over age 70 ½ is already permitted to contribute to a Roth IRA. However, there are income limits for eligibility to contribute to a Roth IRA. These limits remain in effect.
Required Minimum Distributions (RMDs) INCREASED TO age 72
- The new law increases the age threshold from 70 ½ to 72. This change is effective beginning in 2020 for individuals attaining age 70 ½ after December 31, 2019.
- Until now, employees and IRA owners generally had to begin taking distributions at age 70 ½, though they could defer the distribution for the year in which they reach age 70 ½ until April 1 of the following year. However, an employee who is not a 5% owner (with attribution) may defer benefits until retirement; and no distributions are required from a Roth IRA.
Beneficiary IRA Distributions After Death
- Beginning on January 1, 2020, fewer beneficiaries will be able to extend distributions from an Inherited IRA over their lifetime. Most will need to withdraw all assets from the Inherited IRA within 10 years following the death of the original account holder.
- Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent.
- Non-individual beneficiaries, like estates, trusts, and charitable organizations have a five-year window to distribute all assets.
- The new rules apply to IRA and retirement plan assets inherited after December 31, 2019.
As always, you should consult with your own tax advisor to determine how the specific changes and key implications of the SECURE Act may impact you.
Have questions? Please contact us or call 301.881.3727.