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SECURE Act Makes Big Changes to IRA's

The SECURE Act has been passed by the House, Senate, and signed into law by the President last week. SECURE stands for Setting Every Community Up for Retirement Enhancement. While some provisions are intended to raise revenue, most of the changes are designed to boost retirement savings. While there are many tax changes, I will briefly (i.e., not detailing all of the nuances) describe just the three biggest changes affecting clients in this blog post. 

Inherited IRA Distribution Rules Change for Non-Spousal Beneficiaries
By far the most significant change affecting our clients is the elimination of the deferral of IRA distributions for non-spouse beneficiaries of inherited IRA's. Previously, non-spouse beneficiaries could take distributions from IRA's and Roth IRA's over their life expectancy. However, now these beneficiaries (for account owners passing away in 2020 or later) will have to take out 100% of the IRA money within a 10 year time period. There are no specific year-to-year distribution rules or requirements. It can come out at any time, or in any year as long as the account is emptied by the end of the 10th year. This allows for significant tax planning opportunities to create (or avoid creating) taxable income in the desired years within the 10 year time period in order to minimize total taxation on the account withdrawal. Doing so, requires the ability to perform multi-year tax bracket projections like we do for our Wealth Management clients. This new law does NOT affect anyone currently taking minimum distributions as a non-spouse beneficiary. 

Deferral of the Start Date for RMD's
The second big change is the deferral of the start date for IRA required minimum distributions (RMD's). Previously, RMD's had to begin in the year in which you turn age 70 & 1/2 (or deferred to 4/15 of the following year if desired). Now, RMD's must begin in the year in which you turn age 72 (or again deferred to 4/15 of the following year if desired). This provides some good news for those who do NOT need the cash flow from their IRA's at age 70 &1/2, and would desire to defer the taxes by deferring IRA distributions a while longer. This also simplifies things in that the 1/2 age always adds an element of confusion. This change only applies to those individuals who turn 70 ½ in 2020 or later. On a related note, Qualified Charitable Contributions (QCD's) may still begin at age 70 & 1/2. They have not been deferred until age 72. I have written about QCD's in an article titled Over 70 & 1/2 and Donate to Charity? Then Do This! 

IRA Contributions Allowed Past age 70 & 1/2
The third most significant change relevant to our clients is the new ability for those over age 70 & 1/2 to be able to make IRA contributions (assuming they have earned income). Previously, this was not an option. So, now beginning in 2020, individuals of any age will be allowed to contribute to a Traditional IRA assuming they have earned income. 
Again, there are a variety of other tax-extenders and changes less likely to impact clients which I have not described here.

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