by Kathy Sablone, JD, AEP®, Director of Wealth Planning
The Setting Every Community Up for Retirement (“SECURE”) Act has been stalled in Congress and seemed unlikely to pass this year. At the last minute, it was added to a bipartisan spending bill that is expected to pass and be signed into law by the President. The law will be effective January 1, 2020 and makes major changes to the rules that apply to retirement plans.
Here are some of the highlights:
RMDs Delayed Until Age 72
The Act raises the beginning age for required minimum distributions (“RMDs”) from 70½ to 72. This change will be effective for anyone who turns 70½ after December 31, 2019. It will not affect participants who are currently in pay status. Participants can still choose to take distributions before age 72.
No Maximum Age for IRA Contributions
Currently, additional contributions to an IRA are prohibited after age 70½. The Act will allow contributions for anyone who has enough earned income to cover the contribution. Contributions by older workers were already allowed by 401k plans and this gives older workers another opportunity to save, or to consider a “back-door” Roth contribution (converting the contribution to a Roth IRA in the same year).
No More “Stretch” IRAs
Non-spouse beneficiaries of an inherited IRA or 401k will no longer be able to stretch distributions over life expectancy but will need to withdraw the entire IRA within 10 years of the participant’s death. This rule applies to Roth IRAs as well as to traditional IRAs. Any existing inherited IRAs will be grandfathered. There are a few exceptions for “eligible designated beneficiaries” who will be able to take distributions over life expectancy. Eligible beneficiaries include: a surviving spouse, a beneficiary who is less than 10 years younger than the decedent, and disabled or chronically ill individuals. In addition, minors will be allowed to take life expectancy distributions until they reach the age of majority in their state. After they reach that age, the 10-year rule will apply.
Planning for These Changes
- Review your designated beneficiaries. If you are concerned about protecting the assets, you may consider naming a trust as the beneficiary instead of designating individuals. The RMDs will still need to be paid to the trust within 10 years and incur income taxes but could be held for the benefit of the beneficiary instead of being distributed outright. If you already have a trust named as a beneficiary, you should review it to make sure that it still works under the new law.
- If you turn 70½ in 2020 or later, you may want to review with an accountant whether it is advisable to take distributions sooner. With no change in the uniform table for withdrawals, waiting until age 72 could result in much higher RMD in one year and increase taxes and Medicare premiums.
- Review your overall estate plan. Since these changes may affect parts of your estate plan, you should consult with your attorney to make sure that your plan is consistent with your goals.
If you have any questions, please contact our Estate and Financial Planning Group:
Kathy Sablone – [email protected] or 617-956-9712
Alisa Kim O’Neil – [email protected] or 617-275-0313
Important: This article does not contain any legal or tax advice. You should always consult with your attorney, accountant or other professional advisors before changing or implementing any tax, investment or estate planning strategy.
IRS Circular 230 Disclosure: Pursuant to IRS Regulations, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.