SECURE Act: Pt 2

Beginning in the 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 70½ and beyond, provided you have earned income. As far as the deductibility of these contributions, that will still depend on factors such as income as well as whether one has a qualified plan at their employer if still working.

New Rules for Required Minimum Distributions (RMD's) for Beneficiaries

One of the bigger changes that may have a negative outcome is related to inherited IRA's.  Upon death of the account owner, distributions to individual beneficiaries must be made within 10 years. There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the account owner. Minor children who are beneficiaries of IRA accounts also have a special exception to the 10-year rule, but only until they reach the age of majority.

Many of our clients have felt good that IRA money left to their adult children could be "stretched" over their lifetimes. This was known as a stretch IRA.  Up until now, one could pass away, leave their IRA to their adult child and the child only had to take the Required Minimum Distribution (RMD) over their own life expectancy.  So, for example, Joe passed away at age 77 leaving his IRA to his daughter Alicia who was 44 at the time.  Alicia was required to take these RMD's no later than December 31^st of the year following her dad's death.  Going forward, Alicia would not have to take any money out until the 10^th year following her dad's passing BUT the account would have to be emptied by then.  This means the tax implications could be worse as well as no money available to help supplement Alicia's own retirement.  Just another way to pull more tax dollars into the government.

There could be a planning opportunity to leave an IRA to a young grandchild as it could allow tax deferred growth longer.  A newborn could let the account grow until age 18.  However, if that is the year one is entering college, that large distribution could severely impact the amount of financial aid the child might receive. 

Another option may be for the child to take the money earlier and put it in a 529 college savings plan.

As you can see, there are a few things to think about before removing money from these retirement accounts.

Feel free to reach out to us with any questions you may have.