The SECURE Act (“Setting Every Community Up For Retirement Enhancement) which passed on December 19, 2019 is considered the most significant retirement reform in more than a decade and affects the retirement landscape for nearly all Americans by changing regulation effecting traditional IRA accounts and retirement plans.
Two key provisions of how the SECURE Act could affect you:
- More Time to Contribute before Required Withdrawal. For IRA account owners, the SECURE Act changes the 70 ½ age requirement to begin withdrawing the required minimum distributions (RMDs) to age 72. In addition, individuals may now contribute to their IRA accounts (provided they earn compensation) and may deduct their contributions to the accounts until age 72. With Americans living longer and working beyond traditional retirement age, this additional time to contribute to an IRA may allow for additional deferred tax investments gains that could benefit families and charitable causes.
- Less Time to “Stretch.” IRA beneficiaries will feel the most impact from the SECURE Act. While the Act has no impact to spouse beneficiaries, it has eradicated “stretch” payouts for non-spouse beneficiaries – primarily IRA account owner’s children. Prior to the enactment of the SECURE Act, when children of IRA accounts owners inherited their parent’s IRA accounts, each child could withdraw the RMD over their respective life span. The SECURE Act has eliminated this right. Now a non-spouse beneficiary of majority age (subject to a few limited exceptions) is required to withdraw the entire inherited retirement account within 10 years. This change may create significant tax consequences for beneficiaries who are in the highest tax brackets.
The Community Foundation of Sarasota County promotes that IRA assets are good assets to contribute to a Fund at our foundation because of the tax consequences that IRA assets hold. The SECURE Act has now enhanced these tax consequences and charitable planning should be considered at all estate planning meetings. How the Secure Act will affect individual account owners and beneficiaries will depend on their particular situation/circumstances. We encourage you to confer with your legal and tax advisors for individual guidance.