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A few days before Christmas 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).  While this has been overshadowed by the CARES Act, the economic stumulus plan to help the effects of COVID, the SECURE Act was effective January 1, 2020 and will affect everyone with a retirement account. 

The SECURE Act was passed with the intention of helping Americans save for retirement.  Below are a few major highlights that affect every worker and retiree.

  1. Required Minimum Distributions (RMDs) – Previously, the minimum age to start RMDs is 70.5.  That has been increased to 72 years old for anyone who HAS NOT reached 70.5 by 12/31/2019.
  2. Maximum IRA contribution age – In the past, no more IRA contributions can be made once RMDs (age 70.5) begin.  This has been completely removed and there is no upper age limit for contributions.  However, all requirements still apply (ie. earned income, deductibility limits, etc.)
  3. Elimination of S-T-R-E-T-C-H IRA – This one is a game changer.  While there is technically, no such registration as a “Stretch IRA”, it’s the term for those who inherit an IRA and are stretching the RMDs over their lifetimes.  It’s a way to maximize tax-deferred growth.  Well, no more of that for deaths that occur in 2020 or thereafter.  This is one way the IRS is able to accelerate tax collection on the account.
    1. Beneficiaries who inherit an IRA or Roth IRA after 12/31/2019 will need to deplete the account within 10 years.  The pace can be done at the discretion of the beneficiary.  The important thing is in 10 years, the account must be completely depleted or there is a 50% penalty.
    2. There are a few exceptions to the 10-year rule, so stretching is still a possibility if the beneficiary is a:
      1. Spouse
      2. Legal minor child – once the child reaches age of majority (18 in most states), the 10-year rule applies
      3. Disabled/chronically ill individual
      4. Individual not more than 10 years younger than the decedent
    3. Due to the 10-year rule, trusts that were listed as beneficiaries should be reconsidered.  Many trusts were written under previous tax rules and often require/restrict distributions to RMDs only.  If not amended, the beneficiaries may end up with a large tax bill in year 10.  Please take this opportunity to discuss with your estate planning attorney on whether any changes need to be made.
    4. This elimination allows for a multitude of planning opportunities.  Please talk to your financial advisor about possible strategies to offset this change.
  4. Eligibility requirements for 401K – Employers must include part-time employees with at least 500hr and 3 years of service.
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