Congress has passed the Setting Every Community Up for Retirement Enhancement Act (“SECURE ACT”), effective as of January 1, 2020. The SECURE Act contains some major changes for distributions relating to retirement accounts, including the following:
- Stretch payments. In general, a spouse beneficiary can continue to roll over the proceeds from an IRA or 401(k) owned by a deceased account holder into his or her own IRA account and withdraw the funds over his or her lifetime. Before the change in the law, children and other beneficiaries could transfer IRA funds of which they were the beneficiary to an inherited IRA and continue to stretch the payments out over the lifetime of the beneficiary. Now, those individuals must withdraw the entire account within ten (10) years. Exceptions apply for minor children (until they reach the age of majority), disabled individuals, chronically-ill individuals, or individuals who are not more than ten years younger than the deceased.
- Contributions. The SECURE Act repeals the maximum age for making tax-deductible contributions to traditional IRA’s, as long as an employee has taxable income.
- Required Beginning Date. Previously, the required mandatory date for commencing to take IRA distributions was 70-1/2. The date has now been changed to April 1 of the year after the individual reaches age 72.
- Withdrawals for Birth of a Child or Adoption. An individual can now withdraw up to $5,000.00 from an IRA, 401(k), or other qualified retirement plan without penalty in the year following the birth or adoption of a minor child. The individual may later re-contribute this amount to the IRA.
- 529 Plans. Funds in a 529 plan may now be used to re-pay student loans, up to $10,000.00.
Individuals should have a conversation with their financial planner and attorney about how these changes affect them individually.
*DISCLAIMER: This article is for general information only. It is not intended as a source of legal advice, and no information provided should be considered or relied upon as legal advice on any specific matter.