Against a noisy political backdrop and busy holiday season, it would be easy to miss a key piece of legislation called the SECURE Act that was signed into law in late-December that touches in one form or another most all investors and current retirees.
We are receiving some questions regarding the act’s passage and would like to call attention to the two sections we believe are of greatest impact. Before we jump to discussing The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), we want to remind you that we view it important to stay abreast of changes to laws or rules that could impact your financial future. We monitor them almost as closely as we monitor the markets.
The “good news” first – TITLE I: Section 113. Increases the age for Required Minimum Distributions (RMDs). This section increases the age at which individuals are required to begin taking minimum distributions (RMDs) from traditional IRAs from 70 ½ to 72. The idea behind this change was to acknowledge that many individuals are electing to work longer/retire later, and also living longer than when the original legislation was passed. Allowing individuals to delay distributions is a step in the right direction to reduce the probability that individuals might outlive their retirement assets.
Note: Anyone who turned 70 ½ in 2019 is still required to take their first RMD before April1, 2020, and continue doing so using the previous rules.
The second section, and more likely viewed as “bad news” is, TITLE IV: Section 401. Modifications to Required Minimum Distribution Rules. Of particular interest, this section takes away the option for non-spouse beneficiaries to “stretch” IRA distributions over their life expectancy. This option was particularly beneficial to younger beneficiaries who might still be working; allowing them to spread distributions (and the taxes associated with them) over many remaining years. Now/instead, the entire account is required to be distributed by the end of the tenth calendar year following the year of the original account owner’s death (with few exceptions such as for children who are minors or those with special needs).
Why? The answer is fairly straightforward: the change is expected to accelerate and increase the collection of taxes on retirement accounts not used by the original saver or spouse. For this reason, the change may cause some to re-evaluate their beneficiary designations, savings location, and/or estate plans.
Note: Anyone who inherited an IRA before December 31st, 2019 is exempt from the new rule and can continue taking distributions under the prior options.
If you would like to discuss the potential changes as they relate to your specific LIVING LIFE financial plan please let us know. Let us worry about the changes for you; we are here to provide insight to changes like these.
For further information, you can read this statement issued by the House Committee on Ways & Means;
Or review this recent Wall Street Journal article regarding inheriting IRAs, which does a nice job addressing what we believe will be some of the most common questions/scenarios.
By Jordan Acer, CFP, CIMA & Steve Henderly, CFA – Nvest Wealth Strategies