In December, Congress made sweeping changes to the U.S. retirement landscape. The SECURE Act, or “Setting Every Community Up for Retirement Enhancement,” will affect nearly everyone. Here are two major changes.
Change to Rules for Inherited IRAs Under previous law, if a retirement account (IRA, 401k, 403b, etc.) was inherited by someone other than a spouse (i.e. children), it could be distributed gradually over the heir’s life expectancy. Under the SECURE Act, all distributions from the retirement account, with few exceptions, must be made within 10 years of inheriting it. If you’re planning to leave your retirement accounts to your children, this could have substantial tax implications for them, especially if they inherit them during their peak earning years, forcing higher tax payments than under the previous rules. If you intend to leave money to nonprofit organizations through your estate, it would be prudent to consider using these accounts to make those gifts to reduce the tax burden on your heirs.
Required Minimum Distribution Age Change Instead of 70-½ , the SECURE Act now allows you to wait until age 72 to take your first Required Minimum Distribution (RMD) from your IRA, allowing you a year and a half longer to save for retirement. This change only applies to those who have not yet reached age 70-½. If you turned 70-½ in 2019, you must take your RMD under the previous law’s provisions. If you will turn 70-½ during 2020 or later, you can now wait until age 72 to begin taking your RMD. Qualified charitable distributions can still be made to nonprofit organizations beginning at age 70-½.