SECURE ACT: The 3 Most Significant Changes

A 90-second read by the Baron Team:  As part of Congress’ year-end budget deal, the SECURE Act (Setting Every Community Up for Retirement Enhancement) has been signed into law.  The SECURE Act includes many changes that will affect retirement accounts starting in 2020.  Below is a summary of some of the major changes:

Change: Required Minimum Distribution (RMD) Age requirement from 70 ½ to 72

Current Rule (Prior to 2020) 

• For IRA owners, the government requires you to start to withdraw a small percentage from your Traditional Individual Retirement Account (IRA) at age 70 ½.

What is the change beginning in 2020?

• Starting in 2020, the first year you are required to take RMDs will be the year you turn 72.  

What should you do?

• Unfortunately, for anyone who has already started taking RMDs, you must continue to take RMDs according to the old rules.  So, if you are 71 in 2020, you will still need to take an RMD.

Change: No more “Stretch IRA”

Current Rule (Prior to 2020) 

• The “Stretch IRA” allows for a beneficiary to extend the years required to withdraw money from an inherited IRA based on their own life expectancy table.  This only applied to non-spouse inherited IRAs, such as children or other beneficiaries.  

What is the change beginning in 2020?

• For non-spouses, the inherited IRA will need to be fully distributed within 10 years, unless the beneficiary is considered an “Eligible Designated Beneficiary”
• For spouses, when you transfer funds from a deceased spouse’s IRA to your own IRA, the standard distribution rules still apply

What should you do?

• Speak with your accountant about any tax concerns that you may have
• Once you know your tax situation, contact Baron to learn more about what options you might have
• Note:  If you currently have an inherited IRA, this rule change does not apply to the account

Change: Contributions to IRAs can continue after RMD age

Current Rule (Prior to 2020) 

• Once you turned 70 ½, you were no longer able to contribute to a traditional IRA to get a tax deduction

What is the change beginning in 2020?

• You will now be able to contribute to a traditional IRA beyond your RMD age.  However, you will still need “Earned Income”.

What should you do?

• If you are still working, or working part-time, in your 70’s or older, and have enough earned income to contribute to an IRA, you may be able to do so for the tax deduction - if you are eligible for the deduction based on income & 401(k) limits.

Other changes include:  

• The option to use 529-plan funds to repay a portion of student loans
• The ability to withdraw up to $5,000 from your employer retirement plan penalty-free for adoption or birth costs 
• Ability to deduct mortgage insurance expenses

These are just a handful of the changes made and updates still may occur. Please lean on your Baron Financial Group Team or your tax planning professional to help answer any of your questions regarding the specifics of these rule changes.  We are happy to work with your tax planning professional to maximize any strategy that may benefit you. 

 Source: www.congress.gov/bill/116th-congress/house-bill/1865 

Disclosure: This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction.  Past performance is no guarantee of future results.  Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research, tax or investment advice.  Please consult your tax planning professional for personal tax advice.