The SECURE ACT was signed into federal law on 12/20/19. Most provisions become effective 1/1/20. The primary purpose of this law is to make it easier for individuals and for employees and owners of small businesses to save for retirement. On one hand, it certainly does that, and we encourage all clients to speak with us about how this new law can benefit you.
Unfortunately, like so many things, there is a downside. The downside is significant and may require savers and retirees to reconsider their estate planning, i.e. how they pass inherited assets to their families.
The SECURE ACT marks a very important change in the law. We've listed some of the details of that law below, choosing those provisions that we think will apply most to our clients. As always, savings, tax and estate planning decisions are extremely specific to the individual. Please talk with us about how these changes will impact you directly.
- The Good News
- Retirees will not be required to withdraw money from their IRAs until the year they turn 72 (instead of age 70 1/2);
- IRA owners can still give direct IRA distributions to charity beginning at age 70 1/2 and deduct it from their income;
- IRA owners can withdraw $5000 penalty-free to cover the cost of birthing or adopting a child. You will still pay income tax on the withdrawal;
- Tax credits for businesses that set up retirement plans;
- Increased uses for 529 plan, including to pay student loans;
- Spouses of IRA owners can still treat an inherited IRA as their own;
- Long-term part-time workers will have an easier time joining an employer retirement plan;
- Employers will have until the date of filing their tax return to open a new retirement plan;
- Earners over age 70 1/2 can now contribute to an IRA;
- The reversal of some of the Tax Cuts and Jobs Act of 2017 provisions, i.e. kiddie tax, mortgage insurance premiums, energy savings credits
- Non-spouse beneficiaries of retirement accounts will be required to withdraw the entire IRA within 10 years instead of stretching it over the remainder of their lives.
- Minor children who inherit an IRA from their parent will be required to take minimum distributions until they reach the age of majority, at which time their 10-year distribution period will begin.
- Minor children who inherit an IRA from someone who is NOT their parent (i.e. grandparent) will be required to take distributions your immediately and be complete within 10 years.
This is a HUGE and UNWELCOME change for most IRA beneficiaries. In many cases, it will cause IRA distributions to be taxed at a much higher rate than in the past. It also complicates tax and estate planning for IRA owners and their future beneficiaries who want to reduce the amount of tax paid on their savings.Please talk with us about the impact of this law on your portfolio and beneficiaries.