The SECURE Act: How Will It Affect Your Retirement?
As you may have heard, a major change in federal law recently passed. The law, called the SECURE Act, changes the rules related to retirement accounts. For some, these rule changes will require a change to their current plans. The key changes are summarized below.
What does all of this mean for you?
For those with large IRAs, it means your plan may need to change, call our office to discuss what changes might be right for you.
3 Key SECURE Act Changes
1. Increases the RMD age to 72
Before the SECURE Act: Individuals were required to begin taking Required Minimum Distributions in the year they turn 70 ½.
After the SECURE Act: RMDs now begin in the year an individual turns 72 for those who have not already begun taking RMDs. The age to begin making QCDs has not changed.
Planning Note: This change is a “trojan horse” which looks good at first glance, but can result in paying more taxes later. Just because the IRS will allow you to defer taking RMDs doesn’t mean you should. Delaying taking distributions from an IRA may result in paying unnecessary taxes later in life.
2. Eliminates the Stretch IRA
Before the SECURE Act: Beneficiaries could elect to take Inherited IRA distributions over their life expectancy to reduce their tax liability.
After the SECURE Act: Most beneficiaries (with a few exceptions) of Inherited IRAs must withdraw everything from the IRA account within 10 years.
Planning Note: This is the new estate tax! It could result in some children paying close to 40% in taxes because they will be forced to withdraw the entire inherited IRA within 10 years and in many cases, during their highest earning years. Taxes are no longer an individual concern; you must think about how the decisions you make can impact both you and your family when you are gone. Also, individuals with very large retirement accounts should consider a trust that can spread the tax of their retirement account over many individuals by including their grandchildren as way to minimize the overall tax over the 10 years.
3. Eliminates the Age Limit for IRA Contributions
Before the SECURE Act: Individuals could not make contributions to traditional IRAs after they reached age 70 ½.
After the SECURE Act: The old maximum has been repealed, and there are no longer age restrictions for traditional IRA contributions.
Planning Note: As people work later in life, this opens the door to more options to save on taxes. But be careful! You must make sure you have a plan on how to later withdraw those contributions in a tax efficient manner.
4. Eliminates the Age Limit for IRA Contributions
Before the SECURE Act: Individuals could not make contributions to traditional IRAs after they reached age 70 ½.
After the SECURE Act: The old maximum has been repealed, and there are no longer age restrictions for traditional IRA contributions.
Planning Note: As people work later in life, this opens the door to more options to save on taxes. But be careful! You must make sure you have a plan on how to later withdraw those contributions in a tax efficient manner.