The Congressional appropriations bill signed into law in December 2019 by President Trump included the “Setting Every Community Up for Retirement Enhancements” Act (“SECURE Act”.) This new law includes some exciting provisions for Americans in their retirement savings accumulation years.
Effective January 1, 2020, there are some notable changes for investors using traditional IRAs, including:
- Contribution age limit abolished. Previously, once an IRA owner reached age 70 ½, they could no longer contribute to an IRA. The SECURE Act did away with that age limit, meaning that IRA owners of any age can contribute to traditional IRAs, and potentially take tax deductions for those contributions.
- Required Minimum Distribution (RMD) age increased. Under the previous IRA rules, age 70 ½ was also the magic age at which IRA owners needed to start taking RMDs from their accounts. Under the new rule, IRA owners who turn 70 ½ on January 1, 2020 or later now have until the age of 72 before their RMD requirements begin.
- Stretch IRA provisions limited. The old IRA rules allowed designated IRA beneficiaries to “stretch” their distributions out over the beneficiary’s life expectancy. The new rule places limits on the stretch provisions, requiring beneficiaries to take distributions within ten years of the IRA owner’s death when that death occurred after December 31, 2019. There is still an exception for spousal beneficiaries, who can stretch distributions over their lifetimes.
The SECURE act also includes provisions expanding tax credits for small businesses that sponsor IRAs, an expanded definition of what constitutes “eligible compensation” for purposes of determining how much someone can contribute to their IRA in a given year, and tax relief for certain distributions that would previously have been subject to a 10 percent penalty tax.
To learn more, and to schedule time to create or update your estate plan, contact us today!