The SECURE Act was officially signed into law on 12/20/19. It was passed by the house in the summertime, and what I heard last was that it *wasn’t* going to pass the senate, but lo and behold, it did. Like its name implies, it is supposed to make big changes to retirement accounts, and then some.
The biggest change in my opinion is in Required Minimum Distributions. Required Minimum Distributions (RMDs) are required withdrawals that the government mandates you take once you turn a certain age, or if you become a non-spouse beneficiary of an inherited retirement account. The change to RMDs has 2 parts:
- In the past, people who had pre-tax money in IRAs and 401(k)s were required to take a mandatory distribution from those accounts when they turned 70 ½. The SECURE Act raises that age to 72 (if you turn 70 ½ after 12/31/19).
- Harry turns 70 ½ in 2020, but his friend, Charlie, turned 70 ½ in 2019. Charlie must take his required minimum distributions now, as of the time he turned 70 ½, while Harry gets to wait until 2022, when he turns 72.
- Beneficiaries were able to stretch out the amount of their RMDs for Inherited IRAs and 401ks over their lifetime. Now they must take distributions within 10 years.
- Example: Aunt May leaves me her IRA. It has $1,000,000 in it. Before the SECURE Act, I
would have had to take a mandatory distribution out each year, using an IRS calibrated table, over a long period of time. Now, I must take out the $1,000,000 in distributions within 10 years. I could take out $100k per year, or some combo thereof, if I take all of it out within 10 years.
Some other highlights of the SECURE Act:
- Working into your 70s? Bonus, you can still save for retirement with a pre-tax IRA if you have earned income.
- You can now withdraw up to $10,000 from a 529 plan to pay a qualified student loan for the beneficiary.
- You will be able to withdraw up to $5,000 from your 401k, penalty-free, for having or adopting a child.
- Small business owners may find it easier and less expensive to set up a retirement plan for themselves and their employees.
What does the SECURE Act mean for you?
Well, it’s too early to tell in totality. However, the changes I described above may affect your future plans. Touch base with your financial advisor and consider reviewing your estate plan and retirement savings plans with them.
Any opinions are those of Jill Carr and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.