The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law at the end of 2019, and it brings with it the most significant changes to retirement planning in over a decade.
Without a doubt, the SECURE Act will impact millions of Americans. The law’s major provisions are:
• Lowers costs for small employers who want to set up retirement plans for their employees;
• Increases the availability of annuities inside retirement accounts; and
• Makes major required minimum distribution (RMD) rule changes around the age and timing of withdrawal from retirement accounts by owners and beneficiaries.
Overview of Key Provisions of SECURE Act
1. No more “Stretch” for Inherited IRAs Under prior law, non-spouse beneficiaries of IRAs or other retirement plans could “stretch” the required minimum distributions (RMDs) from the plan over their own life expectancy. Under the SECURE Act, the beneficiary has only 10 years after the year of the account owner’s death to withdraw the entire retirement account (unless the beneficiary meets the definition of an “eligible beneficiary” under the SECURE Act.) This will significantly accelerate the distributions & resulting income tax on most retirement plans left to non-spouse beneficiaries.
(Some beneficiaries are exempted from the 10-year stretch rule: surviving spouses, minor children up until the age of majority, individuals within 10 years of age of the deceased, the chronically ill and the disabled.)
2. IRA Contributions after age 70.5 Under the old law, people who continued to work after age 70.5 could not continue to make contributions to a traditional IRA. Under the SECURE Act, those working past age 70.5 can contribute up to $7,000 ($14,000 for a couple) to a traditional or Roth IRA, provided that they have earned income in that year and meet certain additional requirements.
3. RMD beginning date raised to age 72 Previously, RMDs were mandatory for individuals starting at age 70.5. Under the SECURE Act, the new age for mandatory RMDs is raised to age 72. However, for those who reach age 70.5 by the end of 2019, your required beginning date remains age 70.5.
Next Steps: If your estate contains one or more IRA, 401(k) or other retirement accounts, we encourage you to contact the attorneys at Schlack & McGinnity to review your beneficiary designations and to ensure that your retirement accounts are set up in the most advantageous way for your intended beneficiaries.