TAX NOTIFICATION: Retirement Planning Revamped Under The SECURE Act

Thursday, March 12, 2020

Happy New Year!! In the tax world, it wouldn’t be a New Year without tax legislation impacting your planning. Welcome to 2020 and with it, new significant tax legislation that may have a meaningful impact on your retirement planning.

What’s important to know?

NAME: The Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE” Act) was signed into law on December 20, 2019.

EFFECTIVE: The SECURE Act is effective January 1, 2020.

CHANGES: The Most Notable Changes to Retirement Planning under The SECURE Act:

  • Elimination of the “Stretch” IRA. Elimination of the ability to “stretch” certain inherited retirement accounts over a designated beneficiary’s life expectancy.
  • Raises RMD Age. Raises the age at which required minimum distributions (RMDs) must begin from the year the taxpayer attains age 70 ½ to 72.

NEW LAW: Under the SECURE Act:

  • “10-Year Rule”. An IRA must be distributed by December 31 of the 10th year following the year in which the retirement account owner dies. Designated
  • Exceptions to the 10-Year Rule if the IRA designated beneficiary is:
    1. a surviving spouse
    2. a disabled or chronically ill person
    3. the child of the decedent who is younger than 18 years of age until the child attains 18 and then the 10-year rule applies (exception does not apply to grandchildren)
    4. an individual who is not more than 10 years younger than the decedent
    5. IRAs that have already been inherited should be grandfathered, and thus free from the SECURE Act new requirements

    NO CHANGE TO “5-YEAR” RULE.

    • No designated beneficiary (i.e., if the beneficiary is a charity or certain trusts that do not qualify as a designated beneficiary) = “5-Year” Rule.
    • Law Still in Effect After the SECURE Act – An inherited IRA with no designated beneficiary is ineligible for stretch treatment (both lifetime and now 10-year rule). Such inherited IRA is subject to an accelerated withdrawal period of 5 years.

    Read article here.