As we have discussed in several past blog posts (see here and here and originally here), the SECURE (Setting Every Community Up for Retirement Enhancement) Act promises to make some important changes in how individuals can handle their retirement account and how those accounts might be passed on to heirs or charities. On December 20, 2019 the plan was signed into law, and as it made its way between both houses to the desk of the President, there were some subtle changes to the elements we identified. Consequently, we’ll be reviewing what is contained in the version that now functions as law, as well as identifying some ways the planning landscape has changed as a result. We’ll also be recording a podcast on the topic with an Estate Planning and Tax attorney.
RMD RULES
As we discussed in our previous blog in the topic, the bill contains changes to the Required Minimum Distribution of retirement accounts such as IRAs or 401(k)s:
The important clarification to this that came with passage of the law is that if you turn 70.5 in 2019, you will be required to begin taking your RMDs. However, if your 70th birthday was after July 1st, you will be able to delay your withdrawals until the year you turn 72. Additionally, the new actuarial tables for RMDs show longer life expectancy and, consequently, lower annual RMDs.
Age Limits
Should you still be working at age 75 and want to contribute to your Traditional IRA, you may do so, as there is no longer a limit at what age you can contribute to an IRA.
“Stretch” IRAs
As we discussed in our previous post:
In order to pay for the decreased revenues, the treatment of IRAs and 401(k)s inherited by individuals other than a spouse would be changed. Rather than being allowed to “stretch” withdrawals from an IRA across the inheritor’s full lifespan, under the current terms of the legislation, such withdrawals would be limited to a 10 year time frame.
The one addition to this in the final bill is that any IRAs which are to be moved/decanted into a trust will be limited to a 5 year period rather than a 10-year one.
There were a couple of additional rules that were put into place– namely, that a penalty free (though not tax-free) withdrawal can be made from an IRA account within a year of a birth or adoption. Additionally, it will be easier to roll custodial 403(b) accounts into IRA accounts.
Finally, there are several additional changes to 401(k)s and other employer sponsored retirement plans contained in the SECURE Act that will be discussed in future blogs.