The SECURE Act is Official – Now What?

Posted January 7, 2020 by John Posey

As part of the year-end spending bill, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) took effect January 1, 2020.  This new law creates some changes very relevant to those who are near age 70 and those still working beyond age 70 in addition to those with significant retirement account balances.  Refer to my previous post describing the end of the Stretch IRA here if you have the latter situation.  Here’s what you need to know about the changes:

Required Minimum Distributions (RMDs) Start at Age 72, not 70½ 

Starting in 2020, you don’t have to take an RMD unless you will reach age 72 in the calendar year.  No more calculating those half years when you reach the magical age of 70.  Nobody wants to think about half birthdays after age 12 anyway!

You Can Contribute to An IRA After Age 70½ 

You can now continue to contribute to a traditional IRA beyond age 70 ½ . If you work, you can contribute…it’s kind of like the “If you work, you ride” car ads on TV.  You must have earned income to make a contribution and age is no longer a factor.  Now you can work, ride and contribute to an IRA even if you’re over 70 just like the kids do it!  

Inherited Retirement Accounts

Upon the death of an IRA owner, distributions to non-spouse beneficiaries must be made within 10 years and no annual required minimum distribution rules apply.  No longer are you allowed to “Stretch” distributions over non-spouse beneficiary's life expectancies.  This becomes relevant to beneficiaries because IRA distributions are subject to ordinary income tax which can have the potential to push individuals into higher tax brackets.  There are some exceptions to the new rule for minors, disabled individuals, and beneficiaries who are not more than 10 years younger than the account owner.  Now is the time to revisit your estate plan if you have significant assets in retirement accounts.  You and your beneficiaries may benefit from some financial planning around how your heirs will ultimately receive the retirement assets.  Considering Roth IRA conversions and other tax planning strategies could make a significant on impact on the value provided to the next generation.

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