Enacted in December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act is the broadest piece of retirement legislation to pass in over a decade.
Among other aims, the Act enhances access to tax-advantaged accounts and prevents older Americans from outliving their assets.
What does this mean for you?
Three Key Impacts
The SECURE Act affects retirement strategies and wealth transfers in the following ways:
- Eliminates stretch provisions
- Changes the Required Minimum Distribution (RMD) age to 72
- Allows contributions to IRAs after age 70.5
While the Act sets forth additional provisions, we’ve chosen to focus on these three impacts, which are most applicable to Vista clients.
No More Stretch Provisions
Prior to the SECURE Act, non-spouse beneficiaries could “stretch” annual required distributions associated with inherited IRAs over their lifetime. This is no longer the case. Inherited accounts must now be depleted within 10 years.
There are exceptions to the 10-year rule for spouses, disabled and chronically ill individuals, and individuals who are not more than 10 years younger than the account owner (think siblings).
Minor children have a special exception until they reach the age of majority—18 in Oregon and Washington—at which point they switch from age-based RMDs to the 10-year rule.
If the account was inherited from a non-parent, minor children are ineligible for the exception.
Note that if you’ve already inherited a stretch IRA, you are grandfathered in to the old rules.
New RMD Age
Prior to the SECURE Act, retirees were required to take IRA distributions the year in which they turned 70.5. The Act amends this to age 72, with some caveats.
People who turned 70.5 in 2019 still must take their RMDs under the old rules.
If you were born before June 30, 1949, you will still be subject to the old rules. If you were born on or after July 1, 1949, you are subject to the new rules.
The upshot? There will be no IRA owners who must take their first RMD in 2020.
Contributions After Age 70.5
People who are still working and earning an income at age 70.5 and beyond may be able to make a tax-deductible IRA contribution of up to $7,000. Prior to the SECURE Act, IRA contributions were not permitted after age 70.5.
If you currently make or plan to make Qualified Charitable Distributions (QCDs) from your IRA, these will now be reduced by the amount of tax-deductible IRA contributions made after age 70.5.
Vista Can Help
How the SECURE Act affects you depends on your specific situation. Vista can help you navigate the new rules and, if needed, make adjustments to your retirement plan. We’re here to help.
This post is Part One of an ongoing series on the SECURE Act. In Part Two, we’ll provide a deeper dive into the details and planning opportunities associated with this legislation.