The Secure Act is a new bipartisan law that has taken effect this year.
Secure stands for “Setting Every Community Up for Retirement Enhancement.”
As is typical with new tax laws there are some advantages and disadvantages. Anytime you’re doing some tax planning you should consult with an experienced advisor and be prepared to adjust your plan over time to compensate for modifications in the tax code.
One positive aspect of the Secure Act affects contributions for older workers. In the past, you could not make contributions to your IRA or qualified retirement account once you reached the age of 70½. The Secure Act will allow further contributions to a retirement account without any age restriction as long as you are working and have some earned income. This will definitely benefit older people who are still working and not quite yet ready for retirement.
Another plus is the change to RMDs or required minimum distributions. Last year in 2019, required minimum distributions had to commence in the year that the participant turned age 70½. Starting this year, the age has been raised to 72. If a participant reached age 70½ by Dec. 30, 2019, the old rules still apply and RMDs must start in that year. If the participant has not reached age 70 ½ by the end of 2019, the new rules apply and now you don’t have to start taking your RMDs until the year that you reach age 72. This will help retirees who don’t need income from their retirement account yet and allow them to keep the funds tax deferred for an additional 18 months.
The new law also allows for penalty free retirement plan distributions for qualified births and adoptions. Prior to age 59½, the early withdrawal federal tax penalty is 10%. Starting in 2020 a married couple can take out up to $10,000 for a qualified birth without penalty.
There will be a negative impact for people who have received inherited IRAs. If the IRA was inherited before Jan. 1, 2020, there will be no changes to your mandatory distributions. If you inherit an IRA on or after Jan. 1, 2020, most people will have to withdraw all of the inherited funds within a 10-year period.
There are some exceptions for surviving spouses, minor children, disabled people and beneficiaries whose age is within 10 years of the deceased person.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://iwcasset.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.