How does the SECURE Act affect retirees?
- At the 11th hour of 2019 the Senate passed, and the president signed into law, the SECURE Act, which includes significant retirement reforms that may impact your retirement planning. As with most legislation, the Setting Every Community Up for Retirement Enhancement (SECURE) Act (division O of HR 1865) is a dense read, so we have summarized the highlights that are of most interest to retirees. This is by no means an attempt to cover every provision of the new law which takes effect January 2020. The entire law can be read here: https://www.congress.gov/bill/116th-congress/house-bill/1865.
- 72 is the new age to begin Required Minimum Distributions, otherwise known as RMDs.
- If you have attained the age of 70½ in the year 2019, you must take your RMD as scheduled. If your date of birth is on or before June 30th, 1949, you will be required to start RMDs.
- Those born on or after July 1st, 1949, get to wait until the year they turn 72 to begin the Required Minimum Distributions.
- Traditional IRA contributions are no longer prohibited at age 70 ½ and beyond.
- Beginning in 2020 individual of any age will be allowed to contribute to traditional IRAs as long as the individual has compensation which includes earned income from wages or self-employment. The key here is that you must be working in order to contribute but age is no longer a factor.
- No More Stretch IRA. If you pass away in 2020 or after, your non-spousal beneficiary must empty the retirement account he or she has inherited from you by the end of the 10th year following the inheritance. The good news is that there is no requirement that the money must be distributed at specific times as long as the distributions happen within that 10-year time frame. For example:
Susie passes away in early 2020. Her daughter Anne, age 60, inherits Susie’s IRA. Anne is still working and is in a higher tax bracket but will not be when she retires in 8 years. Under the new law, Anne can wait until the 9th and 10th year after Susie’s death to take distributions of the funds and thus pay taxes on the IRA distributions in a lower tax bracket.
- Eligible designated beneficiaries are not subject to the 10-year rule. These eligible beneficiary designations include
- Spousal beneficiaries
- Disabled beneficiaries
- Chronically ill beneficiaries, (as defined by IRS)
- Individuals who are not more than that 10 years younger than the deceased
- Certain minor children
- If you are already “stretching” out distributions from an inherited IRA you will be able to continue the “stretch.”
- Qualified Charitable Distributions (QDCs) will still be allowed to begin at age 70 ½. These Qualified Charitable Distributions will remain tax-free up to $100,000 if the funds go directly to a 503c-qualified charity.
The above is a list of highlights of how the new SECURE Act pertains to retirees and does not cover the entirety of the new law. A few other highlights include:
- The availability of up to $5000 to be used for qualified birth or adoption expenses.
- Tax incentives for small employers to offer retirement plans.
- Qualified education expenses for 529 plan funds expanded to include student loans and apprenticeships. (The Tax Cuts and Job Act of 2017 allowed for $10,000 annually to be used for K-12 expenses.)
Retirement planning now has a new layer of complexities with the passing of the SECURE Act. We suggest that you consider an individualized Retirement Plan or Financial Plan with a Financial Advisor which allows you to take the financial stress out of retirement. Atlanta-based Silver Penny Financial Planning has financial advisors who specialize in retirement planning for those seeking an expert and a coach to help take the worry out of financial planning. As always, consult your tax advisor and attorney for specifics on your situation.