Congress has managed to pass a significant piece of legislation affecting retirement planning and it is known as the Setting Every Community Up for Retirement Enhancement or SECURE Act for short. There are a number of new provisions in the act, but the three that seem most important to our clients follow. The law awaits the President’s signature as we write this, but he is expected to sign.
Delay in age for Required Minimum Distributions
The act increases the age for RMDs from 70 ½ to 72 years. It goes into effect on January 1 of 2020, so if you’ve already reached 70 ½, you remain under the existing rules. If you turn 70 ½ on or after January 1, you’ll get to wait until the year that you turn 72 to begin your required withdrawals. This will provide as much as a 2 year deferral in required distributions, allowing for continue growth before withdrawals are required.
Inherited IRAs get whacked.
The SECURE Act requires IRAs inherited by non-spousal beneficiaries to take 100% of the IRA before the end of the 10th year after inheritance. This provision will not affect current inherited IRAs, only those created after 2019. This is clearly a revenue raiser to offset the other beneficial parts of the act. Distributions for spousal beneficiaries continue to be based on IRS mortality tables as before, allowing longer deferral of taxes, but only for spouses of decedents.
Age cap for IRA contributions is eliminated.
People are working longer than ever and this change, allows workers to contribution to IRAs after age 70 ½, which was the former stopping point. This will allow workers to continue to make retirement plan contributions for as long as they are working and will help folks preparing for retirement to further build their nest eggs.
This is just a primer on the SECURE Act. We’ll have more information and strategy ideas in the new year as we learn more about how we can help position our portfolios to take advantage of the new rules.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.