Why You Shouldn’t Ignore the SECURE Act
Finally, three years after first discussed, Congress has passed the SECURE Act as part of the most recent spending bill. President Trump is expected to sign it today. It contains some of the biggest changes to retirement benefits since 2006. Here is why you should not ignore the SECURE Act, no matter what your age and retirement status:
· Required minimum distribution age increased from 70 ½ to 72 years old
Instead of a forced withdrawal from a qualified plan or IRA at age 70 ½, retirees can now delay until 72. Keep in mind that this only applies to people who were not 70 ½ by the end of 2019.
· Penalty-free withdrawals allowed from qualified plans and IRAs for births and adoption
You can now take up to $5,000 from a retirement plan to cover costs related to a birth or adoption without paying the 10% early withdrawal penalty. The distribution would still be included as ordinary income. Other penalty-free withdrawals from an IRA include unreimbursed medical expenses, first-time homebuyers, qualified higher education expenses and a total and permanent disability.
· Removal of the age limit on IRA contributions
As people work longer, there was significant pressure to make this change and allow people to contribute past age 70 ½. This only applies to traditional IRAs as Roth IRAs did not (and still do not) have this same contribution age limit.
· Requires beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts within 10 years
This may be the most unfavorable part of the legislation. Currently, beneficiaries may take distributions from inherited IRAs over their own lifetimes. Now, certain beneficiaries will need to take all distributions within 10 years. Beneficiaries that are exceptions to this would be:
- Surviving spouse
- Children under the age of majority (until they reach the age of majority)
- Disabled or chronically ill
- Individual no more than 10 years younger than the deceased
There are several other changes included in the SECURE Act. However, the ones highlighted above will likely be the most impactful. We expect to gain more clarity and specifics in the coming weeks. As the IRS and other interested parties issue guidance on the execution and logistics of the above, we will provide more information. At a minimum, we encourage everyone to review beneficiary designations on all retirement accounts and begin discussions with attorneys and financial advisors as it relates to estate planning. More to come – stay tuned!
If you have any questions about these changes, please reach out to White Oaks Wealth Advisors here!
Laura Bereiter, CPA, PFS™, CFP® joined White Oaks Wealth Advisors in October 2015. She offers comprehensive wealth, tax, and estate planning to the firm’s clients.