TAX NOTIFICATION: Retirement Planning Revamped Under The SECURE Act
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:
- a surviving spouse
- a disabled or chronically ill person
- 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)
- an individual who is not more than 10 years younger than the decedent
- 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.