Changes to your IRAs, 401(k)s, RMDs, and more:
The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was approved by the Senate on Dec.19, 2019. This Act includes retirement savings and employee benefit changes as outlined below:
- The Act changes the age required to take Required Minimum Distributions (RMDs) from your retirement accounts, from age 70 ½ to age 72. This applies to the following accounts: 401(a), 401(k), 403(b), and governmental 457(b) plans and traditional IRAs. As of today though, there is no age limit on making Roth IRA
- For beneficiaries of a retirement account and traditional IRAs, whose account owner passed after December 31, 2019, you will need to withdraw the assets in these accounts within 10 years after owner’s death. The only exceptions to this 10-year distribution requirement apply to a surviving spouse, a minor child, a disabled or ill individual, and beneficiaries who are less than 10 years younger than the account owner.
Benefits of the SECURE Act:
- Act will allow account owners to continue their retirement savings for a longer period of time, and allows traditional IRA owners to keep making contributions indefinitely.
- The SECURE Act makes it easier for small business owners to set up “safe harbor” retirement plans.
- Part-time workers will be able to participate in an employer retirement plan.
- The Act directs most non-spouses inheriting IRAs take distributions that empty the account in 10 years.
- The Act allows 401(k) plans to offer annuities.
The Secure Act requirement that the named beneficiaries take out their payments over a 10-year period comes with challenges. The concentration of payment in a short period will certainly suddenly increase the named beneficiary’s income and with a potential increase of their own income tax liability, by increasing their income tax rate on all of their other regular income. This increase in annual income during their next 10 years could impact their eligibility for other tax benefits, entitlements, etc. and should be considered in naming beneficiaries.
Contact our office for an update of your retirement planning and to learn the advantages of using a Trust in the payout of a retirement account.