Important Retirement Account Changes Under the SECURE Act
- Age based restrictions on IRA contributions have been eliminated, as long as you still have “earned income”, you can continue to make contributions to your traditional IRA. This will allow you to potentially save for retirement for several years longer than you would have before the change.
- Congress also increased the age when you must begin taking contributions from your retirement accounts. The new required beginning date for retirement account distributions is April 1 of the year following the year you turn 72 years old. However, if you turned 70 1/2 in 2019, you are still subject to the previous law.
- Graduate students may count taxable stipends and non-tuition fellowship payments as “earned income”. This change in the law provides a planning opportunity for parents or grandparents who would like to make a contribution to an IRA on behalf of a child or grandchild.
Congress has also made changes to the law governing distributions from retirement accounts inherited from anyone who dies after January 1, 2020. The new default rule is that a designated beneficiary has 10 years following the year of the death of the account owner to withdrawal the full balance of the inherited retirement account.
The exceptions to this new 10 year rule for “Eligible Designated Beneficiaries” are:
- Spouses.
- Minor Children. However, once the child reaches the age of “majority”, he or she has ten years to withdraw the remainder of the account balance.
- Disabled Individuals.
- Chronically Ill Individuals.
- Anyone less than 10 years younger than the decedent.
These new changes will offer more flexibility in planning options for retirement accounts and estate planning.
See, Kelly A. Barse, Important Retirement Account Changes Under the SECURE Act, Obermayer Fiduciary Advisor, June 3, 2020.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.