The SECURE Act (Setting Every Community Up for Retirement Enhancement) Act was passed in December 2019, with the goal of increasing access to retirement accounts and preventing retirees from outliving their money.
How will the SECURE Act Impact Me?
RMD Age
The SECURE Act has changed the RMD age from 70 ½ to 72. This only applies to individuals who turn 70 ½ in 2020 or later. These individuals are required to take his or her first RMD by April 1 of the year following the year he or she turns 72.
Individuals who turned 70 ½ in 2019 must abide by the old rules.
Please note that the CARES Act, passed on March 27, 2020, has suspended RMDs for tax year 2020. No retiree must take an RMD in 2020.
IRA Contributions
The SECURE Act now allows individuals over age 70 ½ with earned income to contribute to Traditional IRAs.
Inherited IRA Rules
Under the SECURE Act, beneficiaries who inherit retirement accounts in 2020 or later are required to completely distribute those assets within 10 years. There is no required minimum distribution per year, however, there is a 50% penalty for funds remaining in an inherited IRA at the end of the 10-year period.
This new rule does not affect existing inherited IRA holders; it only affects beneficiaries who inherit a retirement account due to the death of the original owner in 2020 or later.
Some beneficiaries, called Eligible Designated Beneficiaries, may be exempt from this new rule, including surviving spouses, beneficiaries less than ten years younger than the original owner, and individuals with disabilities to name a few. Please consult a tax professional to determine if you qualify as an Eligible Designated Beneficiary.
Birth and Adoption Fees
The SECURE Act allows new parents to withdraw up to $5,000 from a retirement account for birth and adoption expenses. He or she will still owe taxes, but the 10% early-withdrawal penalty will not apply.
529 Funds for Student Debt
Under the SECURE Act, up to $10,000 of 529 Plan assets can be used to repay student loans. The assets can only be used to repay the loans of the beneficiary or the beneficiary’s siblings.
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