December was an interesting month for the retirement industry, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law on December 20, 2019; and went into effect on January 1, 2020. So what do you need to know about the changes this Act may have on your retirement account. Let us take a look starting with Individual retirement accounts
IRA’s You can now contribute to your Traditional IRA past the age of 701/2, as long as you have earned income, this was not the case before.
- Do keep in mind, since the law came into effect on January 1st 2020, those who have reached 701/2 will not be allowed to fund a traditional IRA for tax year 2019, even though the deadline is April 15, 2020. They may fund the account for tax year 2020 (up to $7,000 for people over age 50). You can look this up by visiting the IRS website: https://www.irs.gov/retirement-plans/traditional-iras
Your Required Minimum Distributions ( RMD)
- SECURE Act has changed the age for RMD, as you may know according to the previous law the age for withdrawing money from your IRA was 70.5, now the new age is 72. Do keep in mind that for those who turned 70.5 in 2019 will still need to take their RMD. This does not apply to those turning 70.5 in 2020. ( do consult a tax professional in this matter)
Inherited Retirement Account
- According to the SECURE Act, beneficiaries who know inherited IRA’s, 401K’s must now withdraw all funds from those inherited retirement accounts within 10 years. To keep in mind, the inheritance must be owned from 2020 in other words, the original owner passes away after December 2019. The so called ‘Stretch provision’ where inherited IRA could be stretched through out the lifetime of the beneficiary is no more in effect.
- Heirs who are exempt from this law: a surviving spouse, and beneficiaries who are chronically ill, are in the category .
- For children (minors of, the 10-year rule would kick in when they reach the age of majority. This exemption does not apply to other minor children such as grandchildren.
- The 10-year rule will carry tax implications, so make sure you consult a tax specialist.
The SECURE Act also affects employer sponsored plans and kiddie tax rule as well as automatic enrollments as well as Multi Employer Plans.
You should consult with your estate planner or tax advisor with respect to how the SECURE Act may officially affect you.
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