If you save for retirement with an IRA or other plan, you\u2019ll be interested to know that Congress recently passed a law that makes significant modifications to these accounts. The SECURE Act, which was signed into law on December 20, 2019, made these four changes.
\nChange #1: The maximum age for making traditional IRA contributions is repealed. Before 2020, traditional IRA contributions weren\u2019t allowed once you reached age 70\u00bd. Starting in 2020, an individual of any age can make contributions to a traditional IRA, as long he or she has compensation, which generally means earned income from wages or self-employment.
\nChange #2: The required minimum distribution (RMD) age was raised from 70\u00bd to 72. Before 2020, retirement plan participants and IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70\u00bd. The age 70\u00bd requirement was first applied in the early 1960s and, until recently, hadn\u2019t been adjusted to account for increased life expectancies.
\nFor distributions required to be made after December 31, 2019, for individuals who attain age 70\u00bd after that date, the age at which individuals must begin taking distributions from their retirement plans or IRAs is increased from 70\u00bd to 72.
\nChange #3: \u201cStretch IRAs\u201d were partially eliminated. If a plan participant or IRA owner died before 2020, their beneficiaries (spouses and non-spouses) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary\u2019s life or life expectancy. This is sometimes called a \u201cstretch IRA.\u201d
\nHowever, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most non-spouse beneficiaries are generally required to be distributed within 10 years following a plan participant\u2019s or IRA owner\u2019s death. That means the \u201cstretch\u201d strategy is no longer allowed for those beneficiaries.
\nThere are some exceptions to the 10-year rule. For example, it\u2019s still allowed for: the surviving spouse of a plan participant or IRA owner; a child of a plan participant or IRA owner who hasn\u2019t reached the age of majority; a chronically ill individual; and any other individual who isn\u2019t more than 10 years younger than a plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancies.
\nChange #4: Penalty-free withdrawals are now allowed for birth or adoption expenses. A distribution from a retirement plan must generally be included in income. And, unless an exception applies, a distribution before the age of 59\u00bd is subject to a 10% early withdrawal penalty on the amount includible in income.
\nStarting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. The $5,000 amount applies on an individual basis. Therefore, each spouse in a married couple may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.
\nQuestions?
\nThese are only some of the changes included in the new law. If you have questions about your situation, don\u2019t hesitate to contact us.
\n\u00a9 2020<\/p>\n","protected":false},"excerpt":{"rendered":"
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