Introduction to “Secure Act” and your Retirement

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On December 20, 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”). With a name like that, the law makers were clearly looking for a flashy acronym rather than an easy-to-remember chapter title.

The GOOD news: Traditional IRA contributions may now be made after the age of 70½. In addition, while you certainly may take distributions, you are not required to take required minimum distributions until the age of 72 (this does not apply if you turned 70½ in the year 2019 or earlier). This allows individuals to hold off on taking those required minimum distributions for a time and letting the tax savings accrue. The extension also provides time to make a Roth IRA conversion without having to worry about the impact of required distributions.

The BAD news: For those hoping to use their qualified retirement accounts as long-term tax advantaged gifts to their heirs, the new SECURE Act now requires those accounts to be drained within ten years after the account owner’s death. What the means is that, where you could previously stretch out those distributions over your heirs’ life expectancy, now they must be taken within ten years, including the negative income tax implications

The ten-year rule does not apply in some limited exceptions-so called Eligible Designated Beneficiaries. Such beneficiary is either (1) the surviving spouse of the account owner, (2) a minor child of the deceased account owner, (3) a beneficiary who is not more than ten years younger than the deceased account owner, or (4) a chronically ill individual (as defined in the Act). So, for those with a much younger spouse or a minor child, the stretch IRA is still a good method for stretching out those tax benefits.

In addition, the SECURE Act also affects the qualified charitable distributions. Essentially, charitable contributions made after you reach age 70½ may reduce your annual qualified charitable distribution allowance. So those reducing tax liability through charitable contributions may encounter some limitations going forward.

The SECURE Act is broad and this article only scratches the surface of some of the issues. If nothing else, it provides an excellent opportunity to review your estate plan, including your trusts and/or beneficiary designations, in light of the new law changes. If you have questions or concerns on how the SECURE Act my affect you, please do not hesitate to give us a call.

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