The SECURE Act has passed! We believe some clients will be impacted in one of these three ways. Download our free report on Estate Planning with IRAs to read more.
1. The Required Minimum Distribution (RMD) Age was increased from 70 ½ to 72.
This is a positive change and will benefit you if you have a large amount of tax-deferred savings in an IRA. You can now grow your IRA money for another year and a half if you’re not yet in a position where you need to start taking your RMDs.
2. If you are over the age of 70 ½ and have earned income, you can continue to contribute to your traditional IRA.
Before this law, if you were 70 ½ or older, you could not contribute to your traditional IRA like you could with a Roth IRA. Now if you are still working, you may continue to contribute all or some of your earned income to your IRA. This is another positive change!
3. Lastly, there were changes to eliminate “Stretching” an inherited IRA for non-spouses.
Up until this law passed, non-spousal beneficiaries of IRA accounts like children, could typically take distributions from an inherited IRA over their own life expectancy, which means it could have been drawn out over many years depending on how old they were at the time the account was inherited. This strategy was used to reduce the tax burden of receiving a full inheritance during peak earning years (think 45-65-year-old adult children). Receiving a large inheritance during this time could put your heirs into a higher tax bracket, which would ultimately reduce the inheritance they receive from you.
Now, the SECURE Act requires most non-spousal beneficiaries to withdraw 100% of the inherited IRA over a 10-year period. This change would likely only impact IRA heirs that are set to inherit a large amount since smaller IRA amounts are typically used up within 10 years by most.