By now, you may have heard of the SECURE act, but my guess is your wondering, what does it really mean for me? Well, we’re here to help!
What is the SECURE act?
The SECURE act (Setting Every Community Up for Retirement Enhancement) is a bill that was passed by both the House and Senate (12/19/19) that includes reforms to DC Plans, DB plans, IRAs and 529 plans. Most provisions in the law become effective January 1st, 2020.
What changes should I be aware of?
There are a changes in a number of different areas so lets break those down by topic:
Changes to IRA’s
If you have an Inherited IRA from someone who passed away prior to January 1st, 2020, there are no changes to your distribution schedule.
However, if you are inheriting an IRA from someone who passed away after December 31st, 2019, there are some changes you should be aware of. In this case most people will need to withdrawal all of the assets from the IRA within 10 years following the death of the original holder. There are a few exceptions to this however: assets left to a surviving spouse, a minor child, a disable individual and beneficiaries that are less than 10 years younger than the decedent.
The rules around RMD’s (Required Minimum Distributions) are also changing.
If you turned 70 ½ on or prior to December 31st 2019, you have no changes. However, if you turned 70 ½ on or after January 1st 2020, your new RMD age is 72. Remember, if you turned 70 ½ at any point in 2019 you still must take the old rules. This only applies to people who turned 70 ½ on or after January 1st 2020.
The act also changes rule to IRA contributions.
Under the previous rules, anyone who reached age 70 ½ was not allowed to contribute to an IRA. Under the new rules, anyone who is working and has earned income can put money into an IRA, regardless of age.
Lastly, if you are planning on having or adopting a child in the future.
The law allows you to take up to $5000 from your IRA or eligible defined contribution plan in order to prepare for or pay expenses related to the arrival of your little addition to the family.
Some other areas of impact
If you hold a Deferred Annuity contract, the shift in RMD may also apply to you. As annuities have other complexities, its always a good idea to speak with your tax advisor to get clarification.
If you are the beneficiary on a 529 account, the law has expanded its definition of a qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans, and expenses for some apprenticeship programs. These changes are actually retroactive to any distribution made on or after January 1st, 2019.
As always, changes that apply to rules around your financial accounts may be a bit overwhelming. Speak with your advisor in order to see how these changes may have a direct impact on you.
The content provided herein is based on our interpretation of the SECURE Act and is not intended to be legal advice or provide a tax opinion. This document is summary only and not meant to represent all provisions within the SECURE Act.