On December 20, 2019, President Trump signed The SECURE Act into law. While there are many ways this new law might affect you, here are the top five changes we’d like our clients to be aware of:
1. 72 is the new starting age for Required Minimum Distributions
Starting in 2020, the age of 72 is the new starting age for taking Required Minimum Distributions (RMD). Anyone who started taking RMDs in 2019 will continue to have to take RMDs going forward. However, “The SECURE Act does not change the age at which an individual can make a Qualified Charitable Distribution from their IRA, which remains at age 70 ½ and now creates a unique 1- or 2-year window where IRA distributions may qualify as charitable contributions, but not as RMDs” (Kitces 2019).
2. The “Stretch IRA” is gone starting in 2020
If you inherit an IRA from a non-spouse in 2020 or later, most beneficiaries can no longer “stretch” these funds out over their lifetime, but now will be required to deplete the IRA within 10 years of inheritance. To clarify, the SECURE Act states you can elect to take any amount of distributions over that time, or take none; but you must distribute 100% of the IRA by the end of the 10th year. For those who inherited IRAs in 2019 or earlier, you will continue to take your annual beneficiary required minimum distribution and are not subject to the 10 year rule.
For those clients who are concerned about leaving a large tax burden if their IRAs might be passed onto children or other heirs, now might be a good time to consider Roth conversions.
3. Annuities are an option in 401ks
Financial Plans & Strategies maintains our stance that annuities are rarely a good option for our clients. If your 401k administrator asks if you want to invest part of your 401k in an annuity, please check with us first so we can first advise you on whether this is suitable for your needs.
4. No more age limit on IRA contributions
As long as you have earned income, you can contribute to an IRA (or other qualified retirement account) – the prior age limit was 70 ½.
5. Penalty-free withdrawal for birth or adoption expenses
Before age 59 ½, you can take a penalty-free withdrawal of up to $5,000 from a qualified retirement account if you have a qualified birth or adoption expense.
If you are uncertain whether the above changes affect your situation, please give our office a call and one of our advisors can discuss with you further.
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