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How Will The SECURE Act Affect You?

On December 20th, President Trump signed into a law a spending bill that included the Setting Every Community Up For Retirement Enhancement (SECURE) Act of 2019.  This legislation made a number of changes in the retirement planning arena.  Of the many changes, the four that may most impact you are:

1. RMDs Will Start at 72 instead of 70 ½

Required Minimum Distribution (RMD) from traditional IRAs will now begin at age 72 instead of 70 ½.  This applies to all account owners who turn 70 ½ after 12/31/2019.  This change reflects the increasing age of the population and the need for distribution flexibility.

2. Contributions to Traditional IRAs Can Occur beyond 70 

Historically, investors using traditional IRAs could not make contributions beyond the age of 70 ½.  As a result of the new law, the age restriction is repealed as long as you have earned income (i.e. salary, commissions, bonus) as least equal to the amount of the contribution.  

3. Penalty Free Withdrawals from Retirement Plans for Births and Adoptions

Investors will now be able to take a distribution up to $5,000 from a retirement plan in the event of a birth or adoption of child and not be assessed the 10% early distribution penalty (known as a 72(t) penalty).  This new exception is added to the list of other events that prevent the 10% from being assessed.

4. Limitations to Stretch IRAs for most beneficiaries

A major negative aspect of the legislation is that for most beneficiaries they will no longer be able to stretch distributions over their lifetime.  Instead, most accounts will need to be completely distributed by the end of a 10-year period.  This will impact IRAs whose owners die after 12/31/2019.  Those not affected by this limitation include:

  • Spouses
  • Disabled and chronically ill dependents
  • Individuals who are not more than 10 years younger than the owner
  • Minor children of the owner until they reach the age of majority

There are many other aspects of the law not covered here but these are the aspects that will most affect you.