The SECURE ActSubmitted by Bond & Devick Wealth Partners on January 14th, 2020
On December 20th, President Trump signed the SECURE Act. A significant piece of legislation that will impact retirees and workers preparing for retirement and their heirs.
Here are a some of the major changes:
Required Minimum Distributions
The mandatory age to begin taking distributions was changed from age 70 ½ to age 72. This creates a planning opportunity for those of you who will be 70 ½ -71 years old in 2020 and who do not need distributions from your IRAs for income. For those of you who turned 70 ½ in 2019 or before, you will still be required to take your required distribution in 2020 and beyond.
Qualified Charitable Distributions
The age to gift from an IRA directly to a charity, a strategy called Qualified Charitable Distribution (QCD) remains the same at age 70 ½. This also provides a planning opportunity for those who are between 70 ½ and 72 and who would like to make tax-free distributions to charity.
529 College Savings Plans
Distributions may now be made from 529 College Savings Plans to be used for apprenticeships and up to $10,000 may be distributed tax-free to pay down student debt.
Unearned income (for example investment income) for minor children are now subject to the parent’s marginal tax rates instead of trust and estate tax rates. Consult your tax preparer, because you may be able to use the parent’s marginal tax rates for minor unearned income for tax year 2019.
Retirement-related disaster relief provisions
Individuals may distribute money from retirement accounts in a federally declared natural disaster area, with favorable allowances (waived early withdrawal penalty, the ability to spread the distribution over three years for tax filing, and a three-year period to pay the distribution back).
The AGI threshold for medical deductions has been lowered to 7.5% for 2019 and 2020.
IRA Contributions Age Limit
There is no longer an age limit on making IRA contributions as long as you have earned income.
Waive early withdrawal penalty for childbirth and adoption
You are now allowed to distribute up to $5,000 from a pre-tax retirement plan (per spouse) without being subject to early withdrawal penalties for childbirth and adoption (per child born/adopted).
For any inherited pre-tax accounts, starting in 2020 for most non-spouse beneficiaries, you must fully distribute the pre-tax account within 10 years of inheritance. This is a major change from the previous rules, which allowed heirs to distribute the account over their lifetime.
Trusts listed as Beneficiaries
In the past, if you have a trust listed as a beneficiary on a retirement account, the required distributions would “look through” the trust and use individual’s ages to determine required distributions for the beneficiaries. Under the SECURE Act, the trust and retirement accounts may both be forced to liquidate after 10 years. If you have listed a trust as a beneficiary, you should contact your estate attorney to see if any changes need to be made to the trust as a result of the SECURE Act.