The Setting Every Community Up for Retirement Enhancement Act, known as the “SECURE ACT”, was signed into Federal Law on December 20, 2019. This law includes significant reforms you should be aware of that impact how retirement accounts are treated. Some of the key changes which may impact you include:
- Most inherited IRA or 401(k) distributions must now be taken within 10 years. Before the SECURE Act, an inherited IRA or 401(k) could be taken out over the beneficiary’s life expectancy, formerly known as a “stretch”. Some exceptions to the new 10-year maximum distribution requirement include retirement accounts left to: a surviving spouse, a minor child, a disabled or chronically ill beneficiary, or a beneficiary less than 10 years younger than the deceased account owner. This is the most significant change in estate planning for the majority of our clients.
- The age you must begin taking your required minimum distributions (RMDs) from your retirement accounts has been increased from the year you turn 70 ½ to the year you turn 72.
- There is no longer a maximum age to contribute to a traditional IRA. Formerly, contributions were capped at age 70 ½.
Some enhancements include: an allowance for parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses; an allowance to withdraw up to $10,000 from 529 plans to repay student loans; provisions for small business owners to receive a tax credit(s) for starting a workplace retirement plan; and eligibility for long-term, part-time workers to contribute to 401(k) plans. The Act also expands allowable 529 education expenses to include home schooling, private or religious school costs and apprenticeships.
Now is a good time to review your beneficiary designations on your retirement accounts and your planning documents. If you have any questions about how the new SECURE Act may impact your estate plans, or other questions as your planning needs and goals evolve, please do not hesitate to contact us or another trusted professional.