On December 20, 2019, the SECURE Act was signed into law by President Donald Trump and contains 29 different provisions, encompassing many aspects of retirement saving and financial planning.
There are many new critical provisions of the SECURE ACT. Still, the one that has the most significant impact on your retirement here in The Villages is the delay of the age for required minimum distributions (RMDs) from 70½ to 72. This favorable development only applies to people who reach 70 1/2 after 2019. If you turned 70 1/2 in 2019 or earlier, you're unaffected. If you will turn 70 1/2 in 2020 or later, you won't need to begin taking RMDs until after reaching age 72. If you're still working after reaching the magic age and you don't own over 5% of the employer, you can delay taking RMDs from your employer's plan until after you've retired.
So, if you turned 70 1/2 in 2019 and have not yet taken your first RMD for that year, you must take that RMD, which is for the 2019 tax year, by no later than 4/1/20 or face a 50% penalty on the shortfall. You must then take your second RMD, which is for the 2020 tax year, by December 31, 2020.
Some other Key Provisions of the SECURE ACT include:
- Repeal the prohibition of retirement contributions (Traditional IRAs) after the account owner reaches age 70½.
- Eliminates the lifetime "stretch" IRA option, requiring non-spouse beneficiaries of IRAs to drain the inherited balance within ten years of the decedent's death.
- Permit penalty-free withdrawals of up to $5,000 from retirement accounts to help pay for childbirth or adoption expenses.
- Expand permitted expenses for 529 college savings plans to include apprenticeships, as well as up to $10,000 of qualified student loan repayments for the beneficiary and $10,000 for each of the beneficiary's siblings.
- Reinstate the "kiddie tax" to pre-Tax Cuts and Jobs Act rates.
- Allow graduate students to count stipends and nontuition fellowship payments as compensation for IRA contribution purposes.
Several of the provisions allow individuals added time for tax-deferred savings and growth before distributions are required. The provisions deemed beneficial to individuals and businesses may result in smaller tax revenue to the government, however. So, the SECURE Act also includes requirements designed to consider for this loss of revenue by expediting the withdrawal and taxation of inherited retirement accounts.
Who Is Not Affected by the SECURE Act?
This new SECURE Act legislation will not affect the following individuals:
- Anyone who turned 70½ prior to December 31, 2019
- The surviving spouses of IRA owners
- The beneficiaries of IRA owners who died prior to December 31, 2019
- The beneficiaries of some owners of existing qualified annuities
As more information is released from the Treasury Department regarding the interpretation of the SECURE Act, it's essential to continue to review all aspects of your financial plan to ensure that you understand how you and your family have been affected. Contact Skip at West Financial in The Villages for more information about the SECURE Act and how it can affect your retirement!