The Setting Every Community Up for Retirement Enhancement (SECURE) Act went into effect on January 1, 2020 and makes a notable impact on our nation's retirement system. Three important changes are outlined below:
1) The new age for RMDs is now 72
Under the SECURE Act, the "begin date" to start taking RMDs from your pretax retirement plan accounts and IRAs is the year you turn 72 (the previous age was 70½).
2) Age limits for contributing to traditional IRAs are eliminated
For tax year 2020 and beyond, the law removes the age limit at which you can contribute to a traditional IRA. Prior to this change, you could not make a traditional IRA contribution after age 70½ (although you can contribute to a Roth IRA if you meet the income limitations). The new law allows anyone who is working and has earned income to contribute to a traditional IRA regardless of age.
3) Non-Spouse beneficiaries who inherit a retirement account must withdraw the entire balance within 10 years
Under prior rules, beneficiaries could elect a "stretch IRA" planning strategy which allowed non-spouse heirs inheriting a pretax retirement plan or IRA to stretch withdrawals over their life expectancy. That meant younger heirs could potentially leave much of that money growing tax-deferred for decades.
Now, non-spouse heirs must empty inherited accounts within 10 years following the year of the owner's death. Heirs who remain under the old rules include spouses; the disabled or chronically ill; minor children (not grandchildren) generally until the age of 18, and beneficiaries who are not more than 10 years younger than the deceased. The prior rules apply if you inherited an account before 2020.
Until next time,
Andrew Herman
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