Author: Courtney Stutts, CFP
Last week, I made the trek down I-85 to Atlanta to attend a one-day IRA and SECURE Act workshop. I sifted through the 8.5 hours and 188 powerpoint slides (don’t be too jealous!) to round up what I believe are some of the most important reminders and updates to share with you as we enter 2020 full steam ahead:
SECURE Act: Reminders
If you missed the prior email in December about the SECURE Act, here are some reminders about the two biggest changes that may apply to you going forward:
- Required minimum distribution (RMD) age increased to 72 (effective January 1, 2020).
- For those who have already begun taking required distributions from your retirement account, you will continue on the schedule you were previously on.
- For those who have not yet started taking RMDs, your required beginning date will now be April 1st following the year in which you turn 72.
- Elimination of the ‘stretch’ IRA
- Now, non-spouse beneficiaries (along with a few other exceptions) must deplete the entire account balance by the 10th year in which they inherit it, creating additional taxable income in what could be the beneficiary’s highest earning years.
- Prior to the SECURE Act, non-spouse beneficiaries could stretch out required distributions from an inherited IRA over their lifetime.
SECURE Act: Lesser known facts
- Maximum age for Traditional IRA contributions repealed
- Traditional IRA contributions may now be made at any age as long as you have earned income in a given year. This rule is effective for 2020 and cannot be used to make contributions for 2019 in 2020.
- 10% penalty exception for childbirth/adoption
- Applicable for both IRAs and 401(k) plans, up to $5,000 can be taken out per parent per qualifying event. This distribution may be spent as the parent sees fit (there is no list of “qualifying expenses”).
- The distribution must be taken within one year after the child’s live birth or adoption (adopted child must be < 18).
- Expansion of 529 plans
- New “Qualified Education Loan Repayment” distributions
- A lifetime limit of up to $10,000 may be used for principal and/or interest on student loans. Additionally, up to $10,000 can be distributed to satisfy student debt of a 529 beneficiary’s siblings (each).
- Full Retirement Age (FRA), or the age in which you are entitled to 100% of your Social Security benefits, increases by two months to 66 years and 8 months.
- FICA taxes, or deductions from payroll to fund Social Security, will now reflect the increase in the national wage index. For example, the maximum amount of earnings subject to Social Security payroll tax will increase to $137,700 – an increase of about $5,000.
- Due to a cost of living adjustment (COLA) in 2020, Social Security benefits will increase by about 1.6% for nearly 69 million Americans.
2020 401(k) Contribution Limits
- $19,500 maximum employee contribution (increase of $500)
- $6,500 age 50 and older catch-up contribution
- IRA limits remain unchanged at $6,000 and $1,000 for age 50 and older catch-up
As always, we look forward to discussing the impact of the above changes and numbers with you personally as we head into 2020.
Investing & Saving, Retirement, Retirement Income, Social Security