The SECURE Act: How does it affect your retirement?
By Christian N. Horde, J.D., LL.M.
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law. The SECURE Act, which is effective January 1, 2020, made some significant changes to how retirement now works.
Here are some major provisions of the SECURE Act:
- The age for required minimum distributions (RMDs) from retirement accounts has been increased from 70 1/2 to 72 years of age.
- The age limit for contributions to traditional individual retirement accounts (IRAs) has been eliminated. Previously, you could only contribute to your traditional IRA until you were 70 1/2, but under the SECURE Act, you can now fund your traditional IRA for as long as you have taxable earned income.
- Expands the allowable uses of 529 accounts. “Qualified higher education expenses” will now also include: (1) Fees, books, supplies, or equipment required for apprenticeship programs; and (2) Up to $10,000 used to repay student loans for the account beneficiary, plus another $10,000 for repayment of student loans for each of the beneficiary’s siblings.
- Increases annuity options in retirement plans and added a new exemption allowing penalty-free withdrawals—up to $5k— from retirement accounts for the birth or adoption of a child.
- Eliminates the “stretch” IRA for most non-spouse beneficiaries: certain beneficiaries are now required to withdraw inherited account balances within 10 years of the account owner’s death. Under the old rules, an individual designated beneficiary could extend post-death “stretch IRA” required minimum distributions over their lifetime. For example, a young grandchild could have a 70-year payout period. The SECURE Act eliminates the stretch IRA and replaces it with a 10-year payout for most beneficiaries.
However, if a person qualifies as an eligible designated beneficiary (EDB), then the old stretch rules can still apply. Eligible designated beneficiaries are:
- Surviving spouses.
- Minor children, up to age of majority – but not grandchildren.
- Disabled individuals – under the IRS rules.
- Chronically ill individuals.
- Individuals not more than 10 years younger than the IRA owner (typically, siblings around the same age).
With these changes it is important to consult with an experienced estate planning attorney to see how they may affect your estate plan. The Elder Law Center of Kirson & Fuller is always up to date with the current changes to the law. Our estate planning attorneys know the law and can work with you to review and setup your estate plan for success.