SECURE Act was designed to help smooth out some minor road blocks to retirement savings – like removing the IRA age limitation for contributions and expanding the start date of RMDs as well as providing for options around avoiding early distribution penalty. Below are high-level FAQs that provide an initial overview of some of the key changes outlined in the Act. For in-depth details regarding the SECURE Act, click here. As always, you should consult with your personal tax advisor regarding your own situation.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act is a retirement bill that was included in a larger legislative package passed by the House of Representatives on December 17, 2019 and by the Senate on December 19, 2019. The bill includes reforms to DC Plans, DB plans, IRAs and 529 plans.
For taxable year 2020 and beyond, the law removes the age limit at which an individual can contribute to a traditional IRA. Before, an individual could not contribute after age 70½; the Act allows anyone that is working and has earned income to contribute to a traditional IRA regardless of age.
The law increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. The Act states that this change applies beginning with IRA account owners who will attain 70½ on or after January 1, 2020. Congress recognizes Americans are increasingly working and living longer and updating RMD rules to reflect changes in life expectancy will allow Americans to continue their retirement savings for an extended period of time.
The Act states that the beginning RMD age is shifted to age 72 for those who reach the age of 70½ starting in year 2020. This would mean that those reaching age 70½ in 2019, or prior to, would need to continue to take RMDs in 2020.
For anyone who inherited an IRA from an original IRA owner who passed away prior to January 1, 2020, no changes to your current distribution schedule are required. However, for situations where the original IRA account owner passes away after December 31, 2019, fewer beneficiaries will be able to extend distributions over their lifetime. Click here for full details regarding this change.
Similar to IRAs, for Qualified Deferred Variable and Fixed Annuities, the law increases the age at which an individual must begin taking required minimum distributions (RMDs) from 70½ to 72. The Act states that this change applies beginning with a contract owner who will reach 70½ on or after January 1, 2020. This shifts the beginning RMD age to age 72 for those who reach the age of 70½ in year 2020, meaning that those reaching age 70½ in 2019 would need to continue to take RMDs in 2020. The IRS may provide further guidance on this point; those who reached age 70½ in 2019 may want to speak with their tax advisor about their 2020 distribution approach.