On December 22, 2019, President Trump signed the SECURE Act into law as part of the government spending bill. The SECURE Act represents the most sweeping retirement reform in over ten years. For most the bill will have little immediate impact; however, here are a few things
to know about the legislation:
1. RMDs Will Now Start at Age 72, not 70 ½
Staring Jan. 1, 2020, the new bill pushes the age at which you need to start withdrawing money from your traditional retirement accounts to age 72 from age 70 ½. These "required minimum distributions" are Uncle Sam's way of getting his share of your retirement savings that have grown tax-free for decades. Those who are currently 70½ or older should not interrupt their RMDs but proceed with them as scheduled under current rules. Those who turn 70½ on or after Jan. 1, 2020, are subject to the new rules and will have an extra year and a half before they need to start withdrawals.
2. You Can Contribute to Your Traditional IRA After Age 70 ½
The law will allow you to contribute to your traditional IRA in the year you turn 70 ½ and beyond, provided you have earned income. This is currently prohibited (although there's no age cap on contributing to a Roth IRA).
3. You Will Have to Pay Taxes on Inherited IRAs Sooner
The bill essentially eliminates the "stretch IRA," an estate planning method that allows IRA beneficiaries to stretch their distributions from their inherited account - and the required tax payments on them - based on their life expectancy. If you named your grandchild as your beneficiary, for example, most of your account can stay invested for decades past your death, and your grandchild could continue to reap the tax benefits.
But under the new law, most beneficiaries will have to withdraw all the distributions from their inherited account and pay taxes on it
within 10 years
. Exceptions are made for certain beneficiaries, including spouses and the chronically ill or disabled.
This provision is not retroactive and will not affect those who have already inherited an IRA. It will apply to those who inherit them starting on Jan. 1, 2020, and may affect the estate planning of those planning to pass on an IRA to a non-spouse.