Congress recently passed – and the President signed into law – the SECURE Act, landmark legislation that may affect how you plan for your retirement. Many of the provisions go into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situation.

Here is a look at some of the more important elements of the SECURE Act that have an impact on individuals. The changes in the law might provide you and your family with tax-savings opportunities. However, not all of the changes are favorable, and there may be steps you could take to minimize their impact.

Required minimum distribution age raised from 70½ to 72.

Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan by April 1 of the year following the year they reached age 70½.

For distributions required to be made after Dec. 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72.

Partial elimination of stretch IRAs.

For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and non-spousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary’s life or life expectancy (this is sometimes referred to as a “stretch IRA”).

However, for deaths of plan participants or IRA owners beginning in 2020, distributions to most non-spouse beneficiaries are generally required to be distributed within ten years following the plan participant’s or IRA owner’s death. So, for those beneficiaries, the “stretching” strategy is no longer allowed.

Exceptions – Those beneficiaries who qualify under one of these exceptions may generally still take their distributions over their life expectancy:

(1) the surviving spouse of the plan participant or IRA owner

(2) a child of the plan participant or IRA owner who has not reached majority (age 18 in SC)

(3) a chronically ill individual;

(4) a disabled individual;

(5) any other individual who is not more than ten years younger than the plan participant or IRA owner.

Qualified Charitable Distributions.

These nontaxable distributions given directly to a charity from an IRA remain available for IRA owners over age 70 ½.

Repeal of the maximum age for traditional IRA contributions.

Before 2020, traditional IRA contributions were not allowed once the individual attained age 70½.  Starting in 2020, the new rules allow an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self-employment.

Section 529 education savings plans allow distributions to repay certain student loans.

Tax-free distributions (up to $10,000) are allowed to pay the principal or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary.

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child.

Starting in 2020, plan distributions before age 59 ½ (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are not subject to the 10% early withdrawal penalty. That $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

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This landmark legislation could have significant effects on you, depending on your situation. Please consult with one of your advisors as to how this new law affects you.

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