SECURE Act Commentary – January 29, 2020

While most of the country was enjoying the holidays in late December, Congress was busy putting the final touches on the Setting Every Community Up for Retirement Enhancement Act, better known by its acronym of the SECURE Act. After being signed into law, the new provisions went into effect January 1st , 2020, marking the most notable changes to retirement accounts in several years. While the changes cover a broad array of topics, here are three items we think could impact the highest number of our clients:

Required Minimum Distribution (RMD) Age Increasing From 70 ½ to 72

It all comes down to one important date: June 30, 1949

If you were born on or before June 30, 1949, the RMD start age is still 70 ½. If this applies to your situation, it is likely you have already taken your first RMD.

If you were born after June 30, 1949, the age at which you must take your first RMD from a retirement account is now 72.

For our retired clients who haven’t reached RMD age yet, this change could extend the window for performing partial Roth IRA conversions or harvesting long-term capital gains while in a lower income tax bracket, or it could simply extend the period of tax-deferred growth for your retirement assets by another 18 months.

For those clients who make direct charitable contributions from an IRA, the minimum allowable age for making Qualified Charitable Distributions from an IRA remains age 70 ½, even though the age at which you must begin RMDs may increase to age 72.

Non-Spouse Inherited IRA Distribution Rule Changes

For those who might pass away on or after January 1, 2020 with non-spouse beneficiaries (i.e. children who inherit from a deceased parent), there are new Inherited IRA distribution rules. While there will no longer be annual RMDs, the new rules will require the Inherited IRA to be fully distributed by the end of the 10th year. This has the potential to cause unexpected tax consequences for a beneficiary in prime working years who might inherit a sizable IRA from a deceased parent.

Please note that for non-spouse beneficiaries who inherited IRAs prior to January 1, 2020, there is NO change to your previous distribution schedule (which allowed clients to “stretch” distributions using annual RMDs over their own life expectancy).

Age Limitation Removed for Traditional IRA Contributions

For clients over age 70 ½ and still working, the maximum age limit on Traditional IRA contributions has now been removed. Previously the limit was age 70 ½ for making Traditional IRA contributions.

We’re happy to evaluate whether any of these changes might impact your plan as part of your next Annual Review meeting.