The Secure Act

David Short |

The Secure Act was signed into law on December 20th, 2019 by President Trump will provide some major changes for investors and retirees.  Major changes worth noting is the RMD age being moved from 70 1/2 to age 72, IRA contributors can continue to to make deposits into their Traditional IRA's beyond age 70 1/2 as long as they have earned income, the small business plans tax credit, and perhaps most notably doing away with the stretch IRA for non-spouse beneficiaries.

The RMD age being moved back to age 72 will provide an additional 18 months of tax deferral for clients that have accounts subject to RMD's  Clients are already asking do I need to wait.  The best answer is it depends on the situation.  If one don't need the funds now they can avoid having the additional taxable income for the next year and half.  Or Perhaps you are in a tax bracket that would benefit from a Roth conversion?  

Clients who continue to work beyond age 70.5 can now continue to put funds away into their pre-tax IRA accounts.  One must have earned income to qualify for the contributions just as before.  Also, for those who are curios there are no age-based restrictions on contributions to a Roth IRA.

The Secure Act is also providing an incentive to small business owners who are offering retirement plans.  The act provides a credit of up to 50% of the startup costs up to a max credit of $5,000 which was previously only $500.  There is also a provision that will provide a separate tax credit of $500 for an auto enrollment feature starting in 2020.  This can even apply to existing plans as this provision depends on when the auto feature is added not when the plan began.

Lastly, the Secure Act is doing away with the stretch IRA for non-spouse beneficiaries.  There are a few exceptions such as a minor child, disabled beneficiary, one who is chronically ill, or not more than 10 years younger than the IRA owner that passed.  Keep in mind for the minors the exception only applies until the minor reaches the age of majority.  In essence, the Secure Act is requiring Traditional IRA accounts to be liquidated within 10 years of the deceased account owners death for the non-spouse beneficiary.  Prior to this change, a non-spouse beneficiary could take the required distributions out over their lifetime.  This will require some creative tax planning for those at risk and especially those who desire to leave an inheritance to their next generation beneficiaries.  Anyone who has questions or concerns regarding these changes can take action with us.  Give us a call at 859-543-8188 to schedule a review meeting today!