With a new year and decade here, there are some new law changes that are now in effect which may impact you and/or your retirement. The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as SECURE Act, was approved by the Senate on Dec. 19, 2019 and signed into law on Dec. 20. This retirement legislation puts into place numerous provisions intended to increase retirement security across the country. The important provisions that we will focus on are:
- Inherited IRAs and “stretch” Retirement Minimum Distribution (RMD)
- RMD rules and contributions
- Credits for small employer plans and automatic enrollment
One of the biggest changes that may affect you is the inherited IRAs distributions or “stretch” RMD. In the event that an individual inherits an IRA from a non-spouse, that individual is now required to withdraw the money from the IRA within a period of 10 years. For example, let’s say that you have a hypothetical $1 million IRA. The beneficiary is not required to take a set amount. The requirement is the money must be withdrawn by the end of the 10th year following the year of inheritance. So, if you are leaving your IRA to a 50-year-old child, they must take all the money by the time they reach age 61. In the past, your 50-year-old child could stretch the money over their expected lifetime, or roughly 30 years. The new limits on IRAs may force account owners to reconsider inheritance strategies and review how the accelerated income may affect a beneficiary’s tax situation.
Another major change that went into effect is the traditional IRAs distributions and contributions. Prior to 2020, the required age to start taking distributions from traditional IRAs was age 70½ and now they have changed the age to 72. If you reach age 70½ in 2020, you can delay taking your first required minimum distribution (RMD) on your traditional IRAs until April 1 of the year after you turn 72. If you turned 70½ in 2019, you will still be required to take your first RMD by April 1, 2020. This may not sound like a big deal to some but keeping your money in a tax-deferred account for additional months may alter some of retirement income projections. One other thing that has also changed is that there is no requirement to stop contributing to your traditional IRA once you have reached age 70½, as long as you meet the earned income requirements.
Lastly, the SECURE Act has now made it easier for small businesses (up to 100 employees) to offer retirement plans to employees. By increasing the business tax credit for plan startup costs, the SECURE Act has made setting up retirement plans more affordable for small businesses. Before the SECURE Act, small businesses could claim a tax credit of up to $500; now the credit cap is up to $5,000 in certain circumstances. This new provision also encourages small businesses to utilize automatic enrollment by providing a further $500 tax credit for 3 years for plans that add auto-enrollment.
With all of these new changes in effect, your particular situation may warrant some adjustments. Please feel free to call and schedule an appointment so we can find some quality time to discuss these changes. In the meantime, we’ll be keeping a close watch on any other pending changes.