Changes for Retirement Plans and IRAs: The SECURE Act of 2019

As 2019 was coming to an end, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law effective January 1, 2020. While the Act makes substantial changes to qualified retirement accounts and IRAs, one of the most critical changes concerns the “stretch” IRA provisions.

Prior law provided that a spouse or non-spouse beneficiary of an IRA or a defined contribution plan could “stretch out” the Required Minimum Distributions (RMD) using a beneficiary’s lifespan. This effectively deferred the payment of tax and allowed for extended tax-deferred asset growth. With the new law, the non-spouse beneficiary will now be limited to a 10-year window to fully distribute the inherited accounts after the account owner’s death, subject to certain exceptions for chronically ill or disabled individuals and deferrals for minors until they reach age of majority. Additionally, the RMD rules for accounts inherited prior to the enactment of the Secure Act will remain unchanged.

It should be noted that distributions under the new timetable are not required to be spread out over the 10-year period. Thus, distributions can be deferred to the end of the 10-year period, thereby maximizing the potential for tax-free growth within the fixed 10-year term.

On a positive note, the Secure Act has increased the RMD age from 70.5 to 72. In addition, the Secure Act repealed the prior maximum contribution age of 70.5. Individuals working past that age can now continue to contribute to their IRAs. Furthermore, under the Secure Act, an owner of an IRA or defined contribution plan may now withdraw up to $5,000 following a qualified birth or adoption without incurring a 10% early-withdrawal penalty tax.

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01.09.2020  |  PUBLICATION: Other Publications  | 

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