On December 20th the SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed into law. The passing of the Act will have three major effects on IRA account owners. The highlights of these law changes are highlighted below.
First, beginning in 2020 the age for mandatory Required Minimum Distributions (RMD) from IRA and other retirement plans that require an RMD will be increased to age 72 from the past 70 ½ rule. IRA account owners will not need to begin distributions until the year in which they reach age 72. Unfortunately, those that have or did reach age 70 ½ by 12/31/2019 are not affected by this new law and will still have to receive their RMD even though they have not reached age 72 in 2020.
The second major change to the law will allow contributions to traditional IRA accounts beyond the age of 70 ½ . Prior to 2020 those that reached age 70 ½ were not allowed to continue contributions to their IRA accounts. Keep in mind the IRA owner must have earned income and meet the income limits for contributing to these plans.
The final change made by the new law will affect beneficiaries receiving IRA accounts from deceased IRA owners. This changes also affects other defined contribution plans like 401k and SEP plans. Unless the beneficiary meets one of the five exceptions listed below they will need to draw down the inherited plan proceeds within 10 years. The lifetime distribution rule is no longer available. The five exceptions to the new law for beneficiaries are:
1. The surviving spouse
2. A child who has not reached the age of majority (NOTE! The 10 year rule begins when the child reaches the age of majority)
3. Disabled
4. Chronically ill
5. Not more than 10 years younger than the deceased IRA owner.
There are several other changes to law with regards to pension plans contained in the new legislation. We have only highlighted those that directly affect IRA accounts. The changes listed above are only general in nature and may change slightly when written into the Internal Revenue Code or other areas of tax law.
If you have any questions concerning the new law that went into effect December 20, 2019 we recommend you contact your tax consultant.
