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SECURE Act: What’s Changed?

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The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was passed at the end of December 2019. The goal is to expand retirement savings opportunities to more people, and to accelerate tax revenues as a means to pay for the proposed changes. This is a high level overview of changes. Talk to your CPA and financial planning consultant (FPC) about what planning opportunities you should consider as a result of this act.

Change #1: Repeal of Maximum Age for Traditional IRA Contributions

The SECURE Act allows individuals at any age to contribute if they have earned income, eliminating the age limit for traditional IRA contributions for workers over age 70½. Previously, an individual who was still working could no longer make contributions to a traditional IRA after reaching age 70½. Roth IRA contributions are allowed at any age for those with earned income under certain income limits (in 2020, $139,000 for single filers and $206,000 for married couples filing jointly).

Change #2: Increase in Age for Required Beginning Date for Mandatory Distributions

The SECURE Act increases the age for required minimum distributions (RMDs) from 70 ½ to 72 for anyone who has not already reached age 70 ½ by the end of 2019. The increase in the age is intended to account for today’s longer life expectancies compared with when the original legislation was passed. The impact may be that RMDs will be larger when taken because of the additional year and a half of tax-deferred growth.

Change #3: Elimination of the Stretch Provision for Inherited Roth and Traditional IRAs

The new law effectively eliminates the stretch IRA for inherited (non-spouse) IRA beneficiaries. Non-spouse IRA beneficiaries will be required to fully distribute the IRA to themselves by the end of the tenth year following the IRA owner’s death. The inherited IRA required distribution rules also apply to inherited Roth IRAs. While there is no tax on Roth distributions, the required ten-year distribution period will greatly reduce the tax-free growth the stretch would have allowed.

This change will also impact those who have named a conduit trust (most likely a revocable trust) as their traditional IRA beneficiary with the stipulation that the “look through” named beneficiary take RMDs from the inherited IRA. Under the SECURE Act, the only required distribution takes place in year 10 when the entire account must be distributed to the “look through” beneficiary.

Contact your CPA and FPC to discuss a review of your retirement portfolio, beneficiary designations, tax projections, and estate plan in light of these proposed changes.


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