The SECURE Act: Understanding How It Will Impact Your Retirement Savings
The SECURE Act, which was signed into law in December,
is the most significant retirement legislation in more than a decade. The Act
puts into place numerous provisions intended to strengthen retirement security
and make saving for retirement easier and more accessible for many Americans.
The SECURE Act includes provisions that:
• delay the starting age for required minimum
• eliminate the maximum age for making tax-deductible
IRA contributions; and
• expand the scope of penalty-free withdrawals and
tax-free distributions from 529 plans.
The Act also eliminates the “stretch IRA” by reducing
the period of tax-free distributions for many types of account beneficiaries.
Below are some of the SECURE Act’s key changes and what
they mean for current retirement savers and future retirees.
Age for Required Minimum Distributions Increased
The Act increases the age, from 70½ to 72, at which an
individual must begin taking required minimum distributions (RMDs) from their
traditional IRA or other tax-favored retirement account. This change applies
beginning with traditional IRA account owners who will attain the age of 70½ on
or after January 1, 2020. Persons who reached the age of 70½ in 2019 or before
still need to make the required minimum distributions in 2020.
Age Restriction on Traditional IRA Contributions
The SECURE Act eliminates the maximum age for
traditional IRA contributions, which was previously capped at 70½ years. As
Americans live longer, an increasing number continue employment beyond
traditional retirement age. The Act allows anyone who is working and has earned
income to contribute to a traditional IRA regardless of age. The maximum amounts
you can contribute to a traditional IRA for 2020 are $6,000 per person under age
50 and $7,000 if you are age 50 or older.
Stretch IRA Eliminated for Certain Inherited IRAs
Previously, beneficiaries who did not inherit their
accounts from a spouse were in some cases allowed to withdraw required minimum
distributions for the span of their lives – thanks to an option known as a
“stretch IRA.” The Act reduces the withdrawal period and requires most
non-spouse beneficiaries to withdraw all assets from the inherited IRA within 10
years following the death of the original account holder. There are no required
minimum distributions within those 10 years, but the entire balance must be
distributed by the end of the 10th year.
Beneficiaries excepted from the 10-year distribution
requirement include a surviving spouse, a minor child of the decedent, a
disabled or chronically ill individual, and beneficiaries who are less than 10
years younger than the decedent.
Penalty-Free Withdrawals for Childbirth and
The Act allows an individual to take a “qualified birth
or adoption distribution” of up to $5,000 during the first year after the birth
or adoption of a child. This distribution is not subject to the 10% early
Expansion of Section 529 Plans
A 529 plan was originally designed as a college savings
plan. The Act expands a 529 education savings account to cover costs associated
with registered apprenticeships, homeschooling, up to $10,000 of qualified
student loan repayments, and elementary and secondary tuition costs.
Distributions for student loan repayments includes distributions to pay
qualified student loans for siblings.
If you are the owner of a tax-favored retirement
account, the SECURE Act should prompt you to review your accounts and IRA
beneficiary designations to ensure that you take full advantage of the new law’s
provisions and avoid any potential risks.
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