Significant Changes to Retirement Rules
On December 20th, the SECURE Act was signed into law. SECURE stands for “Setting Every Community Up for Retirement Enhancement”. It includes numerous changes to retirement benefits and other tax- distribution requirements. These changes are designed to expand retirement plan coverage for workers and increase savings opportunities.
Key changes include:
- Required Minimum Distribution (RMD) age. We often talk about the requirement to distribute from pre-tax IRAs and other retirement accounts at age 70 ½, but now that age has been lifted to age 72. This only applies to people who turn 70 ½ in 2020 or later. There is an interesting twist to how this applies to individuals who are taking Qualified Charitable Distributions. These are still allowed at age 70 ½, but do not satisfy RMD requirements until age 72.
- IRA Contribution age. Along with the RMD Rule, you can now contribute to pre-tax IRAs up until age 72, whereas before the cut off was 70 ½.
- IRA Inheritance. “Stretch” IRAs are no longer allowed for most beneficiaries. It used to be that you could stretch distributions across your life expectancy when you inherited an IRA. Now, that distributions must happen in 10 years or less for certain beneficiaries, thereby forcing you to recognize accelerated income taxes. This change may be especially relevant to those of you who selected a trust as an IRA beneficiary because distributions may be required at a rate not contemplated in the trust document with higher tax consequences.
- 529 College Savings Accounts can now be used to pay off student loans with tax free distributions, subject to limitations and qualifications. They must be “Qualified” and have a lifetime limit of $10,000. This is effective as of the beginning of January 2019.
- Certain tax changes that affect the Kiddie Tax and medical expense deductions to revert back to previous rules.
- There are several provisions for company retirement plans to encourage broader coverage for employees.
There are several other changes not included above that may be relevant to you. Please consult your tax advisor, attorney, financial planner or company retirement plan consultant for more information about how these provisions affect you. Skyline Advisors continually monitors tax law changes and their effect on our clients as part of our comprehensive financial planning and advice service. If you are not a current client, but are considering hiring a financial planner, please contact us for more information.