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Congress passed the SECURE Act

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Congress passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act, which now awaits the President’s signature to be enacted into law. The bill includes multiple changes that affect retirement plans and individual retirees. Those changes which affect individual retirees (and those nearing retirement age) are discussed below.

Required Minimum Distributions

The time when Required Minimum Distributions (RMD) begin is the year in which the account owner turns 70½. The SECURE Act changes the age at which RMD’s begin, to 72 effective on January 1, 2020. If you turned 70½ in 2019, you are still required to begin your RMD’s in 2019 but those turning 70½ after December 31, 2019 are  can wait until the year they turn 72. To begin distributions.

Stretch RMD Changes

One of the more powerful estate planning tools under current law is the ability of non-spouse retirement account beneficiaries to stretch RMD’s over their life expectancy. For example, if you inherit a retirement account at age 45, your remaining life expectancy per the IRS is 38.8 years, and your RMD’s are taken over 38.8  years, allowing the account to grow tax-deferred or tax-free (for Roth IRA’s) over 38.8 years. The new law removes the ability to take distributions over life expectancy, instead limiting the time frame to 10 years. The exception to this rule is spouses, children under the age of majority, disabled beneficiaries, or beneficiaries within 10 years of the decedent.

  • Making Inherited IRA distributions over a ten-year period instead of over a lifetime makes the tax on distributions payable sooner, and in many cases, at a higher tax rate, due to increased amounts of taxable distributions during the ten year period. This makes Roth conversions preferred option in some situations.
  • Beneficiaries are permitted to receive distributions during the ten-year period in any way they choose, and taking those distributions in years where your tax rate is lower will be helpful in reducing the tax you pay on the distributions.
  • Individuals who have Trusts named as beneficiaries of their IRA’s will want to review the Trusts to be certain the language of the Trust will not conflict with the SECURE ACT provisions.

Maximum Age for Traditional IRA Contributions

Previously the maximum age for making an IRA contribution was age 70½. With more individuals working longer, the SECURE Act repeals that maximum age and individuals with wage earnings at any age will now be able to contribute to a Traditional IRA beginning in 2020.

Your professional at Sobel & Co are always available to discuss the SECURE ACT changes with you in more detail, and help you to decide the best course of action.