What is the SECURE Act? (1/22/2020)

The Setting Every Community Up for Retirement Enhancement (SECURE Act) was signed into law in December, and most of the changes took effect January 1, 2020. The SECURE Act was designed to ease the looming retirement savings crisis. Following are some key elements of the new law that could impact your retirement accounts.

Required Minimum Distributions (RMDs) age requirements have changed. Any IRA account holders who turned 70 ½ on or before December 31, 2019 are still required to take RMDs. Clients have until April 1, 2020 to take the distribution. Any IRA account holders who will turn 70 ½ on or after January 1, 2020 are not required to take RMDs until the year they reach 72. They will have until April 1 the year after they turn 72 to take their first RMD.

Non-Spouse Inherited IRAs used to allow many options for distributions, but beginning January 1, 2020, any newly inherited Non-Spouse IRAs will need to be depleted within 10 years. This does not apply to Spousal Inherited IRAs. Exceptions to the 10 years will be made for children who have not reached the age of majority (until they do reach the age of majority) and a few other specific situations.

Contributions into Traditional IRA accounts after 70 ½ will now be allowed if the individual has earned income. RMDs and investment income do not count as earned income. This is in effect beginning January 1, 2020, so a prior year contribution cannot be made for the tax year 2019 in 2020.

No changes were made to Qualified Charitable Distributions (QCDs). QCDs allow for IRA owners who are at least 70 ½ to make up to $100,000 in charitable distributions from their IRAs without being taxed on the distribution.

The law also expands the definition of tax-free or qualified distributions from a 529 Savings Plan to include repayment of up to $10,000 in qualified student loans, and expenses for certain apprenticeship programs. The SECURE Act makes this change retroactive to distributions made after December 31, 2018.

The law has many other details. This is a review of the highlights, but we can provide you with further information.

Lisa A. Dugan

Posted January 22, 2020