For tax years beginning with 2020, the Setting Every Community Up for Retirement Enhancement Act (“The Secure Act”) will help many individuals increase their retirement savings. It also includes other significant tax changes that will affect retirement income distribution amounts as well as tax and estate planning considerations. This article covers who is affected and what has changed in specific areas of interest for retirement savings and income.
Changes for 2020 and Future Years
--The contribution period for traditional IRAs are extended beyond the year in which you reach 70.5 years old. Contributions to traditional IRAs are now permitted regardless of age, just like Roth IRAs, except without having an income restriction on who is eligible to contribute.
--The RGB “Required Beginning Date” for making RMDs “Required Minimum Distributions” has been advanced to April 1st of the year after reaching age 72 instead of 70.5. This will apply only for individuals who reach age 70.5 after 2019. The exception for employees who continue to work and do not own more than 5% of the company’s stock will continue for retirement plan participants who are not retired. Required Minimum Distributions are still not required for Roth IRA accounts.
--“Qualified Charitable IRA Contributions” made directly from an IRA to the charitable institution up to $100,000 per year after age 70.5 are still permitted. However, the $100,000 limit will now be reduced by the total amount of IRA charitable deductions taken for prior tax years.
--There are now stricter rules for IRA and retirement plan beneficiaries after the death of the account owner. Now, most non-spouse beneficiaries must distribute all monies received within 10 years after the account owner’s death instead of over the beneficiary’s own life expectancy (known as a “Stretch IRA”). This change is effective for Required Minimum Distributions from account owners who die after 2019. The new 10-year distribution limit is required regardless of whether the account owner dies before or after the RMD binning date. If the beneficiary subsequently dies, any remaining balance must be distributed within 10 years after that date.
--Exception to the 10-year distribution limit still apply for eligible designated beneficiaries who are among the following: the surviving spouse, minor children, chronically ill individual, and beneficiaries who are no more than 10 years younger than the deceased account owner. The exceptions permit these beneficiaries to take distributions over a number of years based on their life expectancies beginning the year following the year of the account owner’s death. For minor children that reach the age of majority under applicable state law, any remaining balance must be distributed within 10 years after that date.
In addition to what has been covered in this article, there are other new provisions affecting personal financial and tax planning contained in the Secure Act legislation. However, the changes covered here are those that will be most important to consider and affect everyone’s retirement saving and income distribution planning.
Greg Tinaglia
Last Updated: 01/09/2020