On December 20, 2019 the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was signed into law, with many of its key provisions effective January 1, 2020. The SECURE Act brings significant changes to retirement accounts, some positive for investors and some less so.
The SECURE Act increases the required minimum distribution (RMD) age from 70½ to 72, allowing investors another year and a half to build retirement assets. It also eliminates the age restriction for contributing to a traditional IRA, so account owners can continue to contribute after age 70½.
The act allows new parents to withdraw up to $5,000 from their retirement plans for expenses related to a new baby or to adopt a child without the 10% early withdrawal fee. It also allows withdrawals of up to $10,000 from 529 plans for payments on student loans.
The new act makes it more likely that employers will offer annuities within 401k plans, since employers are now insulated from risk so long as their choice of insurer is in good standing with its state’s insurance department.
For some, the most consequential result of the SECURE Act is the elimination of “stretch” IRAs for non-spouse beneficiaries. A non-spouse beneficiary is no longer allowed to “stretch out” distributions over their lifetime, but instead must withdraw the entire account within 10 years. This may well increase taxes and thus decrease the economic value of inherited IRAs. Exceptions to this new rule include surviving spouses, disabled or chronically ill beneficiaries not more than 10 year younger than the account owner, and minor children.
The new restrictions on inherited IRAs make advance tax planning even more significant. It will be important to look with fresh perspective at the potential benefits of Roth conversions, distribution planning, beneficiary changes, and tax bracket management. Going forward, your planning should probably include a more stringent review of the after-tax value of IRAs for beneficiaries, especially for those who have large IRA balances and are a single or surviving spouses.
Those who are charitably inclined and over 70½ should consider making qualified charitable distributions (QCDs). QCDs are direct transfers from IRAs to qualified charities of up to $100,000 per taxpayer per year, and the tax advantages can be significant.
The SECURE Act brings new challenges to the protection of your assets and your ability to leave a financial legacy to those you love. TGS advisors are accustomed to collaborating closely with estate attorneys and CPAs and understand the value of intentional, integrated tax management of cash flows.
If you’d like to learn more about the effects of the SECURE Act on your retirement planning, feel free to schedule a complimentary consultation with a TGS advisor. Give us a call or complete the online form below this article.
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