Winter 2020 Quarterly Newsletter
Author: Jonathan Liles, CFP®, CIMA®
At the end of 2019, the Senate passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act with bipartisan support. The bill had been floating around Congress in various forms for a couple of years and was previously passed by the House in the summer. The most notable change the law for our clients is the elimination of the Stretch IRA. Under previous law, non-spouse beneficiaries (typically your children) were able to spread the distributions from their Inherited IRAs over their life expectancies.
The SECURE Act will now require those beneficiaries to empty the IRAs over the course of 10 years. The new law does not have any requirements around the timing of distributions during the 10-year period. Instead, the IRA simply must be depleted by the end of 10 years. This will allow some flexibility when trying to minimize the tax impact of the distributions. If you have named a trust as the beneficiary of your IRA, you should schedule some time with your advisor and attorney to review that choice. Certain types of trusts that were created to be IRA beneficiaries may not be able to make annual distributions under the new rules, thus requiring the IRA to be liquidated entirely in the 10th year.
For those of you who have not started taking your Required Minimum Distributions (RMDs), the new age that distributions must begin was pushed back from age 70 1/2 to 72. There is also a decent possibility that the life expectancy tables, which determine the amount of the RMD, will be updated this year and go into effect in 2021. For those of you still working in your 70s and earning income, the SECURE Act lifted the restriction on making contributions to an IRA after age 70 1/2.
There were some interesting non-retirement related provisions of the law as well. For example, the list of qualified education expenses for 529 plans was expanded to add student loans and apprenticeships. Student loan debt may be repaid using up to $10,000 in 529 plan funds on a per person, lifetime limit basis. If your child has unearned income, the so called “kiddie tax” was changed back to taxing that income at the parents’ marginal tax rates. Also, if someone in your family is considering adoption, up to $5,000 can now be distributed penalty free from an IRA or company plan. Finally, if you are a small business owner providing a retirement plan for your workers, there are some provisions of the Act that might affect you as well.
We will be busy in the months ahead analyzing these new laws and how they will impact our clients. If you have specific questions, please reach out to your planner for more information.
This article was featured in our Winter 2020 Quarterly Newsletter available here:In the News, Retirement Income