The Recently Passed SECURE Act Brings 4 Major Changes To Your IRA


Greetings + Happy New Year!

So, after the ball drops, and the jubilant Times Square celebration fades away, what comes next?

You guessed it, a new year means new laws and changes to the tax code.

And one of the tax code major changes this year directly impacts your IRA and other retirement accounts. Signed into law on December 20th, in the waning days of 2019, the Setting Every Community Up for Retirement Enhancement Act (AKA the SECURE Act) brings the most sweeping changes to laws governing retirement funding since the Pension Protection Act of 2006.

As is the case with most laws revising the tax code, there’s the good, the bad, and the ugly. Fortunately, the tidings brought by the SECURE Act are mostly good.

To get a better look at how the SECURE Act impacts you personally, we’ll highlight four important changes this new legislation ushers in…

1. Your Required Minimum Distributions (RMD) Are Pushed Back From 70 1/2 to 72

Prior to this new provision, you were required to begin taking distributions from your traditional IRAs and employer tax-deferred accounts, including 401(k)s, 403(b)s, and 457 at the age of 70 1/2. The SECURE Act, however, pushes this age requirement back two years. And as these distributions count as taxable income, the new act grants an additional 18-month tax deferment holiday.

There is one key caveat with the provision regarding the timing of your birth date. If you were born before July 1, 1949, which means you turned 70 1/2 in or before July of 2019, you’re not eligible to take advantage of this deferment opportunity.

2. You Can Still Contribute to Your IRA After Turing 70 1/2

As of the 2020 tax year, you can continue to contribute to your IRA after you turn 70 1/2 (and beyond), as long as you’re still earning income. But if you turned 70 1/2 in 2019 or before, you’re not allowed to make traditional IRA contributions for the 2019 fiscal year.

3. You Must Withdraw Funds From Inheritance Accounts With 10 Years

If you inherit an IRA, pensions plan, 401k, or defined benefit plan, you’re now required to withdraw that money within 10 years of your inheritance. Previously, if you inherited these types of retirement accounts, you were able to “stretch” your withdraws over your entire lifetime, potentially allowing those funds to grow tax-free for the remainder of your natural life. Sadly, that loophole has been closed.

There are, thankfully, a few exceptions. Spouses, disabled persons, and those who are no more than 10 years younger than the original account owner are not subject to the 10-year horizon. In addition, minor children are exempt until they turn 18. And if you’ve already inherited a retirement fund, you off the hook. This new provision only applies to accounts inherited after 2020.

4. You Can Withdraw Funds From IRA to Cover Birth + Adoption Expenses

You and your spouse or partner can now withdraw up to $10,000 ($5,000 per parent, assuming each of you has a retirement account in your name) from your retirement accounts to cover expenses related to births and adoptions without penalty. You’re free to repay the withdraw, but it’s not a loan. As such, you’re not required to adhere to the often strict repayment guidelines governing many early retirement account withdraws.

Have Questions About The SECURE Act?

These are just a few highlights from this far-reaching new legislation. If you have questions about other provisions, of which there are many, by all means, drop me a line here…

I look forward to hearing from you!