Special Note on New Changes to Retirement Plans

In the waning days of the 2019 legislative session, Congress passed a new law, The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) that modifies rules on IRAs and employer retirement plans.  These provisions became effective January 1, 2020, as summarized below.

Key changes specific to IRAs:

  • The age restriction on traditional IRA contributions is removed. For tax years beginning in 2020 or later, investors can now contribute to a traditional IRA at any age as long as they have earned income.
  • The Required Minimum Distribution age increased from 70 ½ to 72 for traditional IRA and employer-type retirement plans. Note that if you turned 70 ½ in 2019, the old rule still applies and you must begin taking your RMD by April 1, 2020.
  • The Act does not change the age at which an individual can make a Qualified Charitable Distribution (QCD) from their IRA – it remains at 70 ½. Therefore contributions to a charity via a QCD before age 72 will simply be made on a pre-tax basis, but after age 72, they will also reduce the amount of RMDs.
  • Inherited Retirement Accounts (both traditional and Roth) must now distribute assets left to beneficiaries (other than a spouse) within 10 years, thus eliminating the ‘stretch’ provision of paying taxes over the beneficiaries’ lifetime.
  • Annual non-spousal inherited IRA distributions are not required. So a Roth IRA beneficiary might wait until the end of the 10 years to take the full distribution (so the full account grows tax-free during that 10 year period).
  • Exceptions to the new distribution rule includes cases of the spouse, disabled, chronically ill, minor children, and heirs who are less than 10 years younger than the IRA owner.
  • Inherited non-spousal IRAs that were in place in 2019 or before will continue under the old rules where the distribution period was based on the beneficiary’s life expectancy.
  • The Act provides small businesses tax incentives to set up automatic enrollment in retirement plans for workers. It also facilitates combining multiple employer plans together for cost efficiencies.

Other notable modifications:

  • An allowance for a penalty-free distribution of up to $5,000 from a retirement account for a qualified birth or adoption
  • Allowance of annuities as an investment option in employer-type retirement plans
  • Improved access for long-term part-time workers to employer retirement plans
  • Reverting the Kiddie Tax back to using the parents’ top marginal tax bracket
  • Allowing 529 college savings plans to be used for up to $10,000 for student loan repayments and apprenticeships

Please contact us by calling ph. 913-345-7000 if you have any questions regarding how this new law may affect your specific financial situation.