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What is the SECURE Act and how may it affect me?


The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019.

Effective January 1st, 2020:

  • Raises the age retirees must begin required minimum distributions (RMDS) from age 70½ to 72.
  • Distributions from Inherited IRAs (from deceased account owners) shortened to 10 years for non-spouse beneficiaries.
  • Removes the 70 ½ age limit for contributing to a traditional IRA.

Raises the age retirees must begin required minimum distributions (RMDs) from age 70½ to 72.

The age required minimum distributions from traditional IRAs, 401(k)s and 403(b)s is raised to age 72 for those who did not attain age 70½ in 2019.  The IRS life expectancy tables that people use to determine their required minimum distributions will not change in 2020 but the tables are expected to be revised beginning in 2021.

In addition, the SECURE Act does not change the age at which an individual can make a Qualified Charitable Distribution (QCD) from their IRA, which remains at age 70 ½ and now creates a unique 1- or 2-year window where IRA distributions may qualify as charitable contributions, but not as RMDs (that haven’t yet begun).

Distributions from Inherited IRAs (from deceased account owners) shortened to 10 years for non-spouse beneficiaries.

The SECURE Act shortens the period that most (but not all) non-spouse beneficiaries can receive IRA assets after the death of the IRA account owner to no more than 10 years. Under current law, non-spouse designated beneficiaries can take distributions over their life expectancy, but for many retirement account owners who pass away in 2020 and beyond, beneficiaries will have ‘only’ 10 years to empty the account.  

This elimination of the "stretch IRA" can have drastic tax implications for beneficiaries that inherit large IRAs because distributions from IRAs are taxed at ordinary marginal income tax rates. A one-time large distribution or distributions spread over a shortened 10-year period as opposed to over one's lifetime can push the beneficiary into higher and higher marginal income tax brackets. Depending upon the beneficiary's situation this can have other unintended consequences as well such as paying a higher capital gains tax rate, causing more Social Security income to be taxed and causing an increase in Medicare Part B premiums.1

Tax planning in the areas of traditional versus Roth contributions AND Roth Conversions in years where income and/or the marginal income tax rate is lower will become most important!

Removes the 70 ½ age limit for contributing to a traditional IRA.

The SECURE ACT lifts the restriction on making contributions to a traditional IRA after age 70 ½ (as long as there is earned income).  Note that there was no age restriction on making Roth IRA contributions.

Summary:

See Kitces.com for additional details.


https://www.bostonprivate.com/our-thinking/vault/articles/congress-passes-legislation-impacting-retirement-and-estate-planning-2051