President Trump recently signed into law the SECURE Act which includes changes to existing rules for retirement accounts and 529 plans.  Most provisions of the Act become effective on January 1, 2020.  We have outlined a few of the major changes below:

Change in Required Minimum Distributions (RMDs)

The law increases the age at which an individual must begin taking RMDs from 70.5 to 72.  This applies to individuals who turn 70.5 in 2020 or later.

Qualified Charitable Distributions (QCD)

There are no changes to the date at which individuals may use their IRA’s to make QCDs.  Even if an individual is turning 70.5 in 2020 and will not have to take an RMD for 2020, they may still use their IRA to make a QCD up to $100K for the year.

Traditional IRA Contributions

Individuals of any age will be allowed to contribute to a traditional IRA (prior to this change the maximum age was 70.5).  The individual must have earned income in order to make a contribution.

Stretch IRA

Beneficiaries who inherit an IRA in 2020 or later will no longer be able to stretch the distributions over their lifetime.  Beneficiaries will have to empty the inherited retirement account by the 10th year following the year of death.  There are a number of exceptions to this rule including when the designated beneficiary is a surviving spouse.  

This change will not impact those who inherited an IRA from an original IRA owner who passed away prior to January 1, 2020.

Child Birth/Adoption

Up to $5,000 can be taken out of an individual’s retirement account upon the birth or adoption of a child and is not subject to the 10% early withdrawal penalty.  If each parent has their own retirement account, they could take out $10,000 in total. You have one year from the date your child is born or the adoption is finalized to withdraw the funds from your retirement account to avoid paying the 10% penalty.

529 Plans

The law expands the use of funds from a 529 to include repayment of up to $10,000 in qualified student loans. 

A number of these changes may impact you now, or in the future.  We encourage you to reach out to us with specific questions.

Best Regards,

Your Team at TLWM

*This information is not intended to be a substitute for specific individualized tax or legal advice.  We suggest that you discuss your tax or legal issues with a qualified tax advisor and/or attorney.

*SECURE ACT Language can be found on the House Ways and Means Committee website: https://waysandmeans.house.gov