The SECURE Act — Implications for Retirement Planning

The SECURE Act (Setting Every Community Up for Retirement Enhancement) was passed into law on December 20, 2019. This is a far-reaching bill, with many implications for retirement planning. Here are some of the key provisions of the bill, and the planning implications for retirees and those planning for retirement.

New rules for IRA beneficiaries

A key change in the new bill is how distributions are made to beneficiaries of inherited IRAs or retirement accounts. 

Until now, beneficiaries of inherited IRAs were able to “stretch” the required distributions over their lifetimes. Under the new rules, most beneficiaries are required to distribute all the inherited IRA within 10 years of the decedent’s death. This new rule does not apply to spouse beneficiaries who can still stretch required distributions over their lifetimes. Certain “Eligible Designated Beneficiaries” such as disabled, chronically ill, those not more than 10 years younger than the decedent, and minor children can also stretch distributions over their lifetimes.

These new beneficiary rules may present some wrinkles in the estate plans with large IRAs or retirement plans or where a trust is named as the beneficiary of the retirement account. Careful management should be considered to identify the best strategy for making the distributions and the resulting taxes.  All IRA and retirement plan owners should review their beneficiary designations considering the new rules.

Increased IRA RMD age

The Act increases the Required Minimum Distribution age from 70 ½ to 72. This will have an immediate impact for people reaching age 70 ½  in 2020 and later, as they will now have an extra year to two years (depending on if they were born in the first half or second half of the year) to start required distributions.   

Notably, the SECURE Act does not change the age in which IRA owners may take Qualified Charitable Distributions (QCDs).  QCDs are still allowed starting at age 70 ½.

Other IRA changes

IRA owners continuing to work past age 70 ½ may now make contributions to traditional IRAs, to the extent that they have earned income.

Also, IRA owners can now take penalty-free distributions for qualified disaster expenses, as well as up to $5,000 for a qualified birth or adoption.

Increasing access to retirement plans

There was bi-partisan support for the SECURE act. Congress no doubt felt the pressure to help U.S. workers, many of whom are in real trouble when it comes to saving for retirement. The Act seeks to encourage retirement savings by making it easier for small businesses to set up 401(k)s and to automatically enroll workers. The Act also provides tax credits to small businesses for setting up plans and auto-enrolling workers.

Non-retirement changes that may affect retirees

Under the 2017 Tax Cuts and Jobs Act, the “Kiddie Tax” on the unearned income of certain was taxable at trust tax rates. The new rules revert to pre-TCJA rules, which allows the income to be taxed at the parent’s marginal rates.

The 529 plan rules received a change under the Act as well. Distributions for certified apprenticeship programs can now be considered qualified distributions. Additionally, a lifetime distribution of $10,000 can be made for a repayment of a “Qualified Education Loan”.

Planning in a changing tax law environment Tax laws and retirement planning rules are ever-changing. At Blankinship & Foster, we help clients navigate changes such as these. We proactively help clients adapt their planning for present and future requirements as they come up. With diligence and a long-term approach, you can stay on track to achieving your retirement goals. Contact us to learn more about how we can help you “Get to How” with your retirement planning.

About Jon Beyrer

Jon Beyrer, EA, CFP® is a partner of Blankinship & Foster LLC and is the firm’s Chief Compliance Officer. As a lead advisor, he focuses on helping families achieve their goals with sound wealth planning. In the community, Jon serves on several boards and is co-founder of the Professional Alliance for Children, a legal/financial charity for families of ill children. He has been quoted in The Wall Street Journal, The New York Times, and the Journal of Financial Planning. Jon lives in San Diego with his family.

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