The rules and regulations are ever-changing and one of Midland Wealth Management’s goals is to keep clients informed. Congress passed the federal government spending bill and was signed into law on December 20, 2019. The spending package includes the Setting Every Community Up for Retirement for Enhancement (SECURE) Act of 2019.
This bill offers several positives with the purpose to simplify administration and ease the path to retirement. Some highlights of the SECURE Act include:
- Age Increase for Required Minimum Distributions
- A Required Minimum Distribution (RMD) is the amount of money that must be withdrawn from a Traditional IRA or qualified plan when you reach age 70½. The SECURE Act increases the age to 72. Please note that there is a transition period, so if you turned 70½ before December 31st, 2019, you fall under the prior rules and will still need to take an RMD no later than April 1
- Age Repeal for Traditional IRA Contributions
- Under pre-SECURE Act rules, individuals could no longer contribute to an IRA after they turn age 70½. This has now been repealed and regardless of age, you can make contributions to a Traditional IRA, as long as you are still working. Keep in mind, other limitations apply, including annual limits.
- Inherited Qualified Plans
- Pre-SECURE Act, it was common for non-spousal beneficiaries to take RMDs over their life expectancy. This was known as a ‘stretch IRA’. The SECURE Act now limits the ability to stretch distributions from retirement assets. Non-spousal beneficiaries must take full payout from the inherited IRA within 10 years of the account holder’s death. Note, this 10-year span can be leveraged to create flexibility on which years to pay taxes.
- Penalty-Free Withdrawals from Retirement Plans for Birth and Adoption
- A 10% penalty is typically assessed for withdrawals from qualified retirement plans and IRAs before age 59½. There are some exceptions to the penalty though, such as qualified higher education expenses and qualified first-time homebuyers. The SECURE Act adds qualified births and adoptions to this exceptions list and allows parents to withdraw up to $5,000 penalty-free within a year of birth or adoption for qualified expenses.
We have covered four notable changes from the SECURE Act of 2019. There are other ways that this new legislation is impacting investors and taxpayers. Please contact your Midland Wealth Management Advisor at 888-637-2120 to discuss further.
Author: Steve Hofmann
Midland Wealth Management does not provide tax or legal advice. Please consult your tax or legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.