On December 20, 2019, President Trump signed, The Setting Every Community Up for Retirement Enhancement (SECURE) Act into law. Below are some of the key changes:
1. Reduction to the “stretch IRA” limits for most non-spouse beneficiaries of retirement account owners who pass away in 2020 and each year thereafter, requiring most non-spouse beneficiaries to liquidate inherited retirement accounts within 10 years instead of being able to distribute over the life expectancy.
Exceptions to the new 10-year rule are:
a. Spousal beneficiaries;
b. Children under the age of majority (original children of the account owner);
c. Individuals with disabilities;
d. Individuals who are chronically ill; and
e. An individual not more than ten years younger than the account holder.
Planning Point: If your trust is currently the primary or contingent beneficiary of your IRA or retirement plan, it will be very important to meet with your estate planning attorney and advisor to review how the new law will affect your planning.
2. There are no longer restrictions on making contributions to a traditional IRA after age 70½ (as long as there is earned income to make the contribution).
3. The required minimum distribution (RMD) start age has been raised from age 70½ to age 72. Note: The SECURE Act has not changed the age when one can make a Qualified Charitable Distribution from their IRA, which is still age 70½.
Planning Point: The change to the new required beginning date for RMDs only applies to those individuals who turn age 72 in 2020 and each year thereafter.
4. Allow more annuities to be offered in 401(k) plans.
5. Parents can withdraw up to $5,000 from retirement accounts penalty free within a year of birth or adoption for qualified expenses.
6. 529 college savings plans can now be used for Apprenticeships and student loan payments (up to $10,000).
7. The Tax Cuts and Jobs Acts Kiddie Tax changes have been repealed back to using the parents’ top marginal tax bracket instead of trust tax brackets.
8. The medical expense deduction threshold is reduced from 10% to 7.5% of adjusted gross income for 2019 and 2020.
We have highlighted only some of the changes in the SECURE Act that could have the greatest impact. However, every situation is unique. It is important to meet with your Planning Alternatives Advisor to review how new laws may impact your personal wealth plan. Please share your name and email below to schedule a time to speak with an Advisor.