Three Things You Should Know about the SECURE Act

A new federal law makes some big changes to retirement savings.  The law is called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).  Never heard of the SECURE Act?  It was included in the omnibus federal appropriations bill that was signed into law at the end of December 2019, and it affects tax years beginning in 2020.  The Act will affect retirement planning for everyone in qualified plans, but some people may feel the effects more than others.  Here are the three things you should know about the SECURE Act.

1. Big Change for Small Businesses.  The Act applies to everyone, but its changes may greatly benefit those who own a small business or work for one.  The Act gives incentives for small businesses to offer retirement plans, such as 401(k), to their employees. For example, it allows small businesses to pool together to offer retirement plans.  The bottom line is that small business owners and their employees may have new options for retirement savings.

2. Changes to IRA Rules.  The Act raises the age by which people are required to take required minimum distributions from traditional IRAs.  Previously, people were required to begin taking distributions by age 70 and a half.  Now, people are not required to begin taking distributions until age 72.   The Act also repeals the maximum age for making contributions to traditional IRAs. 

3.  Changes that Affect Estate Planning.  The Act changes the way most non-spouse beneficiaries must take distributions from an inherited IRA.  Previously, a person who “inherited” an IRA as its beneficiary could take distributions over the course of their expected lifetime.  This offered significant tax savings to IRA beneficiaries that will no longer be available to most non-spouse beneficiaries.  Under the SECURE Act, unless you fall within an exempt category, you must take all distributions, draining the IRA, within 10 years of the year in which the IRA owner passes away.  The four exemptions to the new 10-year draining rule are beneficiaries who are (1) the spouse of the IRA owner; (2) a minor child of the IRA owner; (3) a beneficiary who is no more than 10 years younger than the IRA owner; and (4) certain “chronically ill” individuals, as defined under the Act. 

For many people, their retirement assets are a large part of their legacy plans.  Contact  our office today if you want to discuss how the SECURE Act will affect your estate plan.

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