SECURE Act: What Has Changed

On December 19, 2019, congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which had many changes that impact the retirement planning landscape. The provisions of this act became effective on January 1, 2020. There are many questions as to what effect it will have on those who have retired and those who have not. We will cover some of the main topics and the possible effect they may have on you.

  1. The Required Minimum Distribution (RMD) age increased from 70 ½ to 72. Now this will only affect people who have not turned 70 ½ by the end of 2019. If you were 70 ½ by the end of 2019, things stay the same for you with your RMDs. If you turn 70 ½ in 2020 and beyond, you will now not have to take an RMD until you are 72.
  2. Staying on the 70 ½ thought process, the minimum age to do a Qualified Charitable Distribution (QCD) stays at 70 ½. The Qualified Charitable Distribution is a distribution from your IRA made directly to an eligible charity, which keeps the distribution from counting as income for the account owner.
  3. Previously, there was an age limit (70 ½) where an individual could no longer contribute to an IRA even if they are still working. The SECURE Act removes that age restriction.
  4. There are now penalty-free distributions for the birth of a child or adoption up to $5,000. Previously there would have been the 10% penalty fee.
  5. The end of the “Stretch” Inherited IRA. Beforehand, there were many different rules for distributions of an inherited IRA, but you were able to take them over your lifetime. The new rule requires that most beneficiaries deplete the account within ten years of the date of death. However, there are exceptions. Eligible designated beneficiaries that do not have to deplete the account within 10 years include surviving spouses, minor children, disabled individuals, chronically ill individuals, and individuals not more than ten years younger than the IRA owner (typically siblings). This rule only applies to people that pass away after 2019. If you have an inherited IRA before 2020, you can continue doing what you were doing before.

There are other changes involved with the SECURE Act. I encourage you to read into them especially if you are an employer. These changes seem to be beneficial for the most part but add new variables for retirement planning. We wanted to give you a breakdown of the changes that are taking place as they will most likely have an impact on you. If you have questions about what some of the things mean or how they affect you, please feel free to reach out to me at jshellenberger@frontierasset.com.

 

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