Posted in Asset Protection,Probate & Trust Administration,Tax Law & IRS Defense,Wills, Trusts & Estate Planning

The SECURE Act, or the “Setting Every Community Up for Retirement Enhancement Act”, was recently signed into law on December 20, 2019 without much notice.  It took effect on January 1, 2020 and significantly changed the landscape of retirement planning.  Here are some of the major changes created by the new law:

1. Required minimum distributions will start at age 72 (not age 70.5).  Only those who will turn 70.5 in 2020 or after may wait until age 72 to begin taking required distributions.
   
2. You can now contribute to your traditional IRA after age 70.5.  Beginning in 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 70.5 and beyond if you have earned income.
   
3. Inherited retirement accounts:  Upon death of the account owner after January 1, 2020, distributions to non-spouse individual beneficiaries must be made within 10 years. The rule applies to inherited funds in a 401(k) account or other defined contribution plan as well.  This is significant change for non-spouses as the “stretch” distribution rule is gone with certain exceptions.
4. Adoption and birth expenses:  The new law allows penalty-free withdrawals up to a $5,000 limit from retirement plans for birth or adoption expenses.
5. You can now benefit, even if you work part-time.  The new law requires companies that offer 401(k) plans to allow part-time employees who have worked at least 500 hours a year for at least three consecutive years to set aside money from their paychecks into the plan.

By December 2021 or after, savers are expected to begin receiving estimates once a year for how much monthly income their current 401(k) savings might generate in retirement. This may encourage you to increase how much you save.

The change is only effective starting with tax year 2020 contributions made for the year 2020, so people should understand the 70.5 age limit is still in place for traditional IRAs when it comes to contributions made for tax year 2019.  Lastly, it is recommended that you proactively meet with your financial advisor or estate planning attorney to discuss the changes to inherited retirement accounts, including where you may have a trust listed as a beneficiary.