by Scott Christianson, CFP®
Executive Vice President
In one of the most significant retirement legislation changes in a decade, the President and Congressional leaders recently approved a bill that will have an impact on certain retirement funds. Known as the SECURE Act or “Setting Every Community Up for Retirement Enhancement Act,” this bill had been on hold in Congress since May. As part of the last-minute spending legislation passed by the House this month to keep the government running, the SECURE Act was signed into law on December 20 by the President.
Amending the Internal Revenue Code of 1986, this legislation is aimed at getting more employees covered by workplace retirement plans and allowing for additional opportunities for those looking to save for retirement. These big changes will impact traditional IRAs, inherited IRAs, 401(k)s and other qualified plans. We’ve highlighted a few key points from this legislation that are particularly applicable to many of our clients.
Required minimum distributions (RMDs) starting at age 72. This mandatory distribution age has been set at age 70½ since the 1960s. With this change, individuals turning age 70½ after January 1, 2020, will benefit from the option to defer distributions until the age of 72.
Non-spouse inherited IRAs will be limited to a 10-year distribution period. In what has been known as a “stretch IRA,” beneficiaries of inherited IRAs have been allowed to take distributions based on their life expectancy. This is being significantly curtailed for new beneficiaries starting in 2020. Certain new exceptions apply as well.
Traditional IRAs will no longer have a maximum age for contributions. Previously, traditional IRA contributions have been prohibited after age 70½. This maximum age has been repealed. Earned income requirements would still apply.
Additional considerations from this legislative change include changes to certain employer retirement plans, safe harbor rules and college savings plans.
Establishment of certain employer retirement plans will qualify for additional tax credits and allowances for pooling of some small employer retirement plans.
Expansion of allowable lifetime income and insurance products are available in employer retirement plans.
529 college savings plans qualified distributions are expanded to include a limited amount that can be used for student loan repayment.
As this new legislation gets enacted, we expect further clarifications by the IRS and other governing bodies on these amendments. We expect to have a more detailed recap in the coming weeks. As always, if you have any questions regarding wealth planning, please do not hesitate to contact us. We work collaboratively with clients’ tax and estate planning professionals to navigate changes that arise from newly enacted legislation.