We feel it is important for us to notify you of some key changes to retirement plans that became effective on January 1st, 2020, as a result of The Setting Every Community Up for Retirement Enhancement (SECURE) Act signed into law on December 20th, 2019, by President Trump.
Here are the most notable changes from the SECURE Act that we think you should familiarize yourself with:
- The age limit for making traditional IRA contributions has been eliminated. Under old law, contributions could only be made until the year you turned age 70 ½. New law puts traditional and Roth IRAs under the same contribution timetable: You can make contributions throughout your lifetime as long as you have earned income of equal or greater value to the contribution amount for the year.
- The age for Required Minimum Distributions (RMDs) has increased from the year you turn 70 ½ to age 72. NOTE: Qualified Charitable Contributions can still be made beginning with the year you turn age 70 ½ . NOTE: If you turned 70 ½ in 2019 you are still required to take an RMD this year.
- Penalty-free withdrawals are now available before age 59 ½ due to birth or adoption ($5,000 lifetime limit, and the withdrawal must occur within one year of the birth or adoption event; avoids the 10% early withdrawal penalty, but normal taxation still applies).
- Inherited IRAs: The lifetime “stretch” option has been eliminated. With only a few exceptions, all non-spouse beneficiaries of IRAs are now mandated to withdraw the inherited funds completely (and pay taxes) within a 10-year window (does not affect those non-spouses who inherited IRAs in 2019 or prior). NOTE: Many people name a trust as the beneficiary of a retirement account, and in the past if the trust qualified as a “see through trust”, the inherited IRA could be stretched over the lifetime of the oldest beneficiary, possibly for decades. New law wipes out this option, so we recommend such trusts should be reviewed immediately.
There are additional exceptions and nuances to each of the above listed changes, and we can help you navigate through those with each new change that applies to you. There are also a few other changes that resulted from the passage of the SECURE Act, but they only apply to a small percentage of people, so we did not want to muddy the water with such additional information here.