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Major Changes in IRAs and Retirement Plans: The SECURE ACT

The SECURE Act was recently signed into law and will likely have an impact on your financial, retirement and/or estate plan.

As you may have heard, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law recently and will likely have an impact on some part of your financial, retirement and/or estate plan. Staying up to date on these tax law changes is critically important.

Here are some of the highlights:

1. Required Minimum Distributions

RMDs will start at age 72, not 70 ½. If you turn 70 ½ after December 31, 2019 you will not be required to take RMDS until age 72. If you are currently receiving RMD’s because you are over age 70 ½, you must continue to take RMDs. Only those who turn 70 ½ in 2020 or later may wait until age 72 to begin taking required distributions.

2. Contributions to IRAs

Beginning in 2020, you can contribute to your traditional IRA after age 70 ½ provided you have earned income. This also entitles non-working spouses to make a spousal contribution even if over 70 ½. There is no maximum age for traditional IRA contributions. It does not eliminate the need to take RMDs at 72 even thought you are still working.

3. Inherited IRAs

Distributions from inherited retirement accounts to beneficiaries must now be made within 10 years and not over the beneficiaries’ lifespans. There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the original account owner. Minor children who are beneficiaries of IRA accounts also have a special exception to the 10-year rule, but only until they reach the age of majority. This applies to those inheriting IRAs in 2020 or later. If you are already taking distributions from a beneficiary IRA you can continue to take them over your lifespan. This change will eliminate the concept of the “stretch” IRA. Owners of IRAs should re-evaluate the impact this change will have on their estate. ROTH conversions and life insurance may become more valuable tools for estate planning.

4. Adoption/Birth Expenses

Allows penalty-free withdrawals from retirement plans for birth or adoption expenses up to certain limits.

5. Annuities in 401k Plans

Employers can now offer annuities in 401K plans. If you are still working, this may become an option you should consider in your retirement plan.

6. Multi-employer 401k Plans

The SECURE Act also allows smaller companies to band together to offer 401K plans to employees, reducing the cost and regulatory burdens. This will be available in 2021.

7. Expansion of 529 Plans

The plans can now be used for apprenticeships and to repay qualified education loans up to $10,000 for the plan’s beneficiary or sibling.

8. Increase in the Penalty for Not Filing Tax Returns

The new penalty is the lesser of $435 or 100% of the tax amount due. So be sure to file your return on time.

As always, here at Better Money Decisions, we are here to help you with these and other year end concerns.

About the Author

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Lorraine Ell

CEO and Senior Financial Advisor

Lorraine is the CEO of Better Money Decisions (B$D) and co-author of the blog Better Financial Decisions. As a principal of B$D, she is excited to continue her long career as an investment professional which started when she worked in the 1980s as an advisor with Drexel, Burnham and Lambert and J.W. Charles and as co-owner of a Registered Investment Advisory firm.

Living and working in places as diverse as Jeddah, Saudi Arabia, and Budapest, Hungary has given her a unique perspective on the world of investing. Through these experiences she has learned that life can change in an instant and having a financial guide can make all the difference between a retirement fraught with worry and one with peace of mind.

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