The SECURE legislation—which stands for “Setting Every Community Up for Retirement Enhancement”—puts into place numerous provisions intended to strengthen retirement security across the country. Originally passed by the House in July and approved by the Senate on Dec.19, 2019 as part of an end-of-year appropriations act and accompanying tax measure, it was signed into law on Dec. 20 by Donald Trump. The new law took effect Jan. 1, 2020 and changes some rules about retirement savings. Here’s what’s changing:
Required Minimum Distribution Age Increase
The age at which you need to start taking distributions from your retirement accounts increases from 70.5 to 72. This does not apply to people who already turned 70.5 before 2020. This change provides people the opportunity to do partial Roth IRA conversions for two more years. Whether or not this applies to you depends on your tax rate now versus your heirs’ future tax rate.
10 Year Rule
Non-spousal beneficiaries who inherit an IRA must withdraw all the funds in the account within 10 years. Beneficiaries have flexibility during the 10 years, but the account must have a zero balance at the end of 10 years.
Contribute Longer to IRAs
Retirees may now contribute to IRAs after age 70.5. Previously, contributions could not be made after age 70.5. This will provide people working past age 70.5 with the ability to make IRA contributions and receive the corresponding tax deduction.
Some people have named trusts as the beneficiary of their IRAs. These trusts often have language in them entitling the beneficiary to no more than the annual required minimum distribution from the IRA. Under the SECURE Act, there are no required minimum distributions until year 10, which may not be the intended purpose of the trust. Be sure to contact your attorney to review the terms of the trust and confirm if changes are needed.