We are joined again by Private Wealth Advisor Will Rogers to talk about the recently passed SECURE Act, and how it could impact your retirement planning.
Will, what are the big changes in this legislation?
• A later age for required minimum distributions (RMDs): age 72 from 70 ½ previously.
• A change to the IRA stretch strategy for non-spouse beneficiaries who inherit retirement accounts.
• Elimination of the 70 ½ age limit for workers who contribute to a traditional IRA.
• As a reminder, viewers should always talk to their own tax advisor for specific tax recommendations.
Dakota: What are required minimum distributions, and who does this affect?
Will: These are distributions that owners of certain retirement accounts, such as 401k or Traditional IRA plans, are required to take each year.
The SECURE Act increases the RMD age to 72 from 70 ½ and applies to anyone who turns 70 ½ in 2020 or later.
If you don’t need income from your retirement plan or IRA accounts, the SECURE Act enables you to defer taxes from those accounts. If you want to work longer, the later RMD age provides more time for retirement-income planning.
• You turned 70 ½ in 2019: The SECURE Act does not change your RMD timing. You must take your first RMD by April 1, 2020.
• You will turn 70 ½ in 2020 or later: Under the SECURE Act, you must take your first RMD by April 1 after the year you reach age 72.
Dakota: What are the changes to the “Stretch IRA” strategy
Will: Prior to the Secure Act, beneficiaries who inherited retirement accounts (such as a traditional or Roth IRA) could take the RMDs over their lifetime. The SECURE Act changes that financial strategy for most non-spouse beneficiaries who inherit their retirement account on or after Jan. 1, 2020. As a result:
• Most non-spouse beneficiaries must take the account proceeds (and pay the corresponding taxes) within 10 years of inheriting the account. This can be done with any number of distributions.
• Spouse beneficiaries, non-spouse beneficiaries who are no more than 10 years younger than the IRA owner and non-spouse beneficiaries who are disabled or chronically ill will continue to be able to stretch their IRAs over their lifetime.
• If a minor child inherits the IRA, the 10-year period begins when the beneficiary reaches the age of majority (the age at which a minor child legally becomes an adult, generally between 18 – 21 years old).
• A beneficiary who inherits an individual retirement account before the end of 2019 can still draw down the account over their lifetime. However, if a beneficiary inherits an IRA before the end of 2019 and dies Jan. 1, 2020, or later, that beneficiary’s beneficiary will be subject to the 10-year rule.
Dakota: Why is the change for Traditional IRAs so important?
Will: It allows workers over age 70 ½ to now continue to save in an IRA no matter their age – as long as they have qualifying earnings.
Dakota: Are there other changes in the SECURE Act?
Will: We’ve discussed the major changes, but there are many other changes in the SECURE act, which is why it’s so important for our viewers to reach out to their tax advisors early this year to discuss how the specifics affect them.
Dakota. Good advice - For more information, check out Will’s website at www.WRogers.info