SECURE ACT–Changes in Retirement Law
Updated: Jul 20
A new law, titled Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in December 2019. Most of the law’s provisions have taken effect as of January 2020. The final provisions will be implemented in January 2021. The law reforms access to workplace retirement plans and increases savings for retirement. It impacts 401Ks, Individual Retirement Accounts (IRA), Roth IRAs, 403Bs, defined benefit pension plans, and 529 plans.
No changes to your current distribution schedule or trust are required for anyone who has inherited an IRA from the original IRA owner who died before January 1, 2020. However, in situations where the original owner of the IRA account dies after December 31, 2019, it will be difficult for a beneficiary to extend the distribution of the inherited IRA over their lifetime.
In other words, the beneficiary will need to remove the funds from the inherited IRA within 10 years of the death of the original account holder. Exceptions to the 10-year inheritance provision include assets left to a surviving spouse, a dependent child, a disabled or chronically ill adult, and survivors who are less than 10 years younger than the decedent.
This change will require a reevaluation of your retirement and/or estate plan. While some beneficiaries may qualify for exemptions to the 10-year rule, others will be required to deplete the funds more rapidly than required under the current rules. However, it is important to note that anyone who inherited an IRA from an original account owner who passed away prior to January 1, 2020, can continue his or her current distribution schedule under their current estate plan and/or your current retirement plan.
In addition to the changes mentioned above, the law also increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. The law applies to an IRA account owner who turn 70½ on or after January 1, 2020. This does not impact individuals age 70½ in 2019.
The law also removes the age limit at which an individual can contribute to a traditional IRA. Today, an individual cannot contribute after age 70½ but the Act allows anyone that is working and who has earned income to contribute to a traditional IRA at any age.
Upon the birth or adoption of a child, the law permits an individual to take a “qualified birth or adoption distribution” of up to $5,000 from an applicable eligible defined contribution plan or IRA and the distribution is not subject to the 10% early withdrawal penalty.
The law expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans, and expenses for certain apprenticeship programs. The SECURE Act makes this change retroactive to any distribution made after December 31, 2018. This letter provides some of the key changes highlighted in the Act. However, keep in mind that it is unclear the level of impact this law will have on your individual case.
Therefore, if you have any questions about your individual situation, please contact our office and schedule an appointment to discuss your specific needs.