You may have heard of this recent, wide-ranging piece of legislation and its many provisions. While many aspects do no not affect the majority of our clients, there are a few “need-to-know” details about this act that we want to share with you.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019 and is effective as of January 1, 2020. The purpose of the SECURE Act legislation is to positively impact retirement readiness in America.
One of the major changes resulting from the act is that people must now take an annual required minimum distribution (RMD) from their IRA, SEP IRA, SIMPLE IRA or other qualified retirement plans once they reach the age of 72. Previously, these annual distributions were required when you reached the age of 70 ½ years.
While an extra 18 months may not seem like a lot of time, it gives people the ability to delay taking distributions (which are considered taxable income). Speak with your CPA or tax consultant to see how this might be beneficial to your taxes.
It also eliminates the headache of calculating and remembering your “70 and a half” birthday.
For those of you who turned 70 ½ before January 1, 2020, you are still required to take RMDs, as you’ve already reached the RMD age and your Required Beginning Date has passed under the previous law. Therefore, nothing changes for you and you must continue to take your RMDs under the previous rules.
Another major change is the removal of the RMD “stretch” for most beneficiaries. Under the new law, if an IRA or other retirement account owner dies on or after January 1, 2020 the beneficiary (unless one of the four exempt classes listed below) must distribute the entire account within 10 years. This modifies the previous 5 year rule to 10 years, and also removes the ability for most beneficiaries to take advantage of the lifetime distribution on inherited benefits.
Beneficiaries exempt from “stretch” limitation include surviving spouses, disabled beneficiaries, chronically ill beneficiaries, and beneficiaries not more than 10 years younger than the IRA owner. If you fall under one of these categories, you may continue to stretch distributions over your lifetime.
Please note that the original retirement account owner’s minor children have a slightly different treatment, as they can use a lifetime distribution until they reach the age of majority (18 years old), after which they will be required to distribute the account within 10 years as well.
If you have questions about how the SECURE Act affects you, please reach out to us today at general@opentrailfc.com or call 707-545-6161. We are always here to help our clients with any questions they may have regarding required minimum distributions, retirement planning and any other questions or concerns that may come up while navigating retirement.
Happy Trails!
Team Open Trail