The SECURE Act and YOU!

As you may or may not know, during the last two weeks of 2019, there was a major piece of legislation that affects quite a few staple planning opportunities.  Our goal is to always provide you with the education and tools you need to make informed decisions as it affects your financial house.  While many things in the new law are still being reviewed and interpreted, we wanted to highlight a few changes that are significant and may affect you:

  • Change in age for required minimum distributions from 70 ½ to 72. This only impacts those who did not turn 70 ½ prior to January 1st, 2020.  If you are already in “RMD” status, then this change does not impact you.
  • Given the change in the age for required minimum distributions, we thought it was important to point out that this does not affect your ability to still take advantage of Qualified Charitable Distributions “QCDs” since these can start when you turn 70 ½.
  • A more significant change is the distribution requirements for beneficiaries of inherited Retirement Accounts such as IRAs, Roth IRAs, 401Ks, etc.  The ability to continue to stretch IRA distributions over the beneficiaries’ lives with limited exception for spouses, disabled beneficiaries, chronically ill beneficiaries, minor children and certain trust, was ELIMINATED.  Going forward the general rule is that inherited IRAs must be distributed within 10 years after the retirement account owner passes away.
  • As you know, a taxpayer must have “earned income” to fund an IRA. The Act included a change to allow taxable non-tuition fellowship and stipend payments to count for purposes of funding an IRA.
  • You will be allowed to take penalty free distributions of up to $5,000 from retirement accounts for a qualified birth of a child or adoption. 
  • Contributions to Traditional IRAs will now be allowed beyond the ages of 70 ½ if taxpayers have earned income. This may present an opportunity to continue to fund your retirement accounts and take advantage of tax deferred growth.
  • The Kiddie Tax Rules, effective with the 2017 tax act, has been rolled back. This was disastrous in some cases for children with unearned income.  We are happy to see that go away! This also presents an opportunity to amend a previously filed 2018 tax return for a potential refund that may apply with the old rules.
  • To make 529 Plans more attractive, the qualified distributions rules have been expanded to cover expenses associated with apprenticeships and repayment of student loans of up to $10,000.
  • For business owners, the Act incorporates new credits that are associated with the establishment of Retirement Plans for your employees.
  • There was a change to reduce the amount of work hours required for employees to be eligible to participate in their employer’s 401K plan.  The new rules reduce the hours from 1,000 to 500 so that part-time employees have a chance to save for their retirement.

If you have questions or want to learn more about how the SECURE Act may impact your retirement and legacy planning, please give us a call or consult with your tax or legal advisor.

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