New SECURE Act Comes With Good News And Bad News For IRA Based Estate Plans
Have you heard about The SECURE Act?
If you’ve been contributing to an IRA, 401k or other retirement plan account, you need to become aware of the details of the new SECURE Act that was signed into law in December of 2019 and went into effect January 1, 2020. The new act is sure to affect you and/or your designated heirs in one way or another. And, as might be expected, the law has good news for some and bad news for others.
What It Means
Dubbed “SECURE” as an acronym for Setting Every Community Up For Retirement Enhancement, you can be certain it is actually designed to get more taxes from taxpayers. In fact, the new law has the potential to generate about $15.7 billion in tax revenue over the next decade. More about that later. For now, I’ll focus on the good news.
Extended Deadline For Taking Required Minimum Distribution (RMD)
Prior to this year, owners of an IRA would be required to start taking distributions when they reached 70 ½ years of age. That has now been extended to age 72, unless you turned 70 ½ in 2019. Then you are subject to the previous RMD.
No Age Limit For Contributing To Your IRA
In addition, once you reached 70 ½ years of age, prior to the SECURE Act, you could not continue to contribute to your IRA or retirement account. Now, you can continue to make contributions. However, if you turned 70 ½ before December 31, 2019 you cannot make a contribution for 2019. But, the new law does allow you to make contributions for tax year 2020 and beyond. This is good news since so many seniors who have reached retirement age continue to work.
A Brief Overview Of The Bad News
Remember, these points I’m making are overviews. There are exceptions and nuances that also must be understood which may require a meeting with your estate planner.
The main point to know is that there are very specific and stricter rules for post-death required minimum distributions. For example, the SECURE Act requires most non-spouse IRA and retirement plan beneficiaries to drain the inherited accounts within 10 years after the account owner’s death. This is going to have a greater impact on people who are financially comfortable and don’t need their IRA balances for their own retirement years. It’s going to affect the heirs who, depending on their age and other circumstances, will have to pay the taxes as they take the RMDs. Prior to the SECURE Act, RMD rules allowed all beneficiaries to gradually drain the inherited IRA over his or her lifetime, which allowed greater tax benefits.
Nothing To Worry About If You’ll Be Using Your IRA During Your Retirement
As you can see, if you are planning to use your IRA and drain it during your retirement years, you’re all set. In fact, if you continue working and contributing to your IRA, you’ll likely have a more comfortable retirement fund at your disposal.
If you have an estate and asset protection plan in place, you may want to review the nuances and details of the new SECURE Act with your attorney to discover if and how you may be affected. Call to schedule a meeting with us at your earliest convenience if you think you will be impacted for the 2019 tax year.