What is the SECURE Act and How Could it Affect Your Retirement?
The Setting Every Community Up for Retirement Enhancement Act (SECURE) was signed into law in December 2019 and became a law as of January 1, 2020.The new legislation brings changes for long-term retirement savings and effects Americans at every age.
The SECURE Act changed a variety of retirement account rules, including who is eligible to contribute to retirement accounts and when withdrawals are required.
Here are three major changes created by the new law:
Required Minimum Distributions (RMDs) Will Start At Age 72
Beginning January 1, 2020, you will need to start withdrawing money from your traditional IRAs and employer tax deferred accounts including 401(k)s, 403(b)s, and 457s at age 72, a change from the previous withdrawal requirement of age 70 ½.
If you turned age 70½ in 2019 (born prior to July 1,1949), you will still need to take your RMD for 2019 no later than April 1, 2020. If you are currently receiving RMDs (or should be) because you are over age 70½, you must continue taking these RMDs. Only those who will turn 70½ (born on or after July 1, 1949) 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 you are over 70½.
Inherited Retirement Accounts
Upon death of the account owner, distributions to non-spouse individual beneficiaries must be made within 10 years. The current rules that allowed a non-spouse IRA beneficiary to "stretch" required minimum distributions (RMDs) from an inherited account over their own lifetime (and potentially allow the funds to grow tax-free for decades) has been eliminated. The rule applies to inherited funds in a 401(k) account or other defined contribution plan as well.
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.
Though there are many more aspects to the new law, we have highlighted some most applicable. If you have any questions on the latest rules as they apply to your overall financial and retirement plan, contact us today.
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Financial Advisors Break Down the New SECURE Act and What it Means to You
In EP 075 of the Retire with Confidence Podcast, Nick Hopwood, CFP® and Jim Pilat, AIF® review the new SECURE Act passed by congress in December 2019. Watch or listen to learn about our key takeaways from the new rules.