Secure Act Changes you should Know About
By Andrea Bereznak
The Secure Act became effective January 1, 2020 so it seems like old news. With everything that has happened over the past year though, it is worth revisiting. There are some changes that could impact your financial planning. Below are several changes that apply to many investors.
Do some of the changes apply to you?
Max Age for IRA Contributions Removed
Individuals are now able to contribute to a traditional IRA up to any age if you have earned income. Previously, only workers up to age 70 ½ could add funds to an IRA. IRA contributions are tax-deductible, so this change might help you reduce your income taxes if you are still working and over age 70 ½ !
RMD Age Increased to 72
If you have already retired and own an IRA, 401(k), or other retirement plan, you now have an extra year and a half before you are required to start taking withdrawals from your account. The required withdrawals count as taxable income so if you don’t need the funds, you can now delay the withdrawals a bit longer, postponing the payment of taxes while allowing your investment account the opportunity to continue growing. Note that this change only applies to people born on or after July 1, 1949 and thus turn 70 ½ in 2020 or later. Under the new law, the required beginning date (RBD) is moved to age 72 from 70½, effective for individuals who reach age 70½ after December 31, 2019.
529 Education Savings Accounts Expansion
The Secure Act expanded the list of acceptable uses of 529 education savings account funds to include registered apprenticeships, homeschooling, private elementary, secondary, or religious schools, and up to $10,000 of qualified student loan repayments. Loan repayments can be for the 529 account beneficiary or for their siblings. For example, say your daughter Sally used her 529 account funds and needed to take out student loans to finish her college degree. Let’s also suppose that your son John, Sally’s younger brother, has his own 529 account, but was fortunate to receive scholarships cover his college costs. John’s 529 can distribute $10,000 to help cover Sally’s qualified student loans, with no taxes nor penalties.
Modified “Stretch IRA” RMD Rules for Inherited IRAs
The options for beneficiaries who receive inherited IRAs have changed. Most notably, the Secure Act provisions eliminate the stretch IRA distribution option for many new inherited IRA owners. The impact is that many owners must now deplete the inherited IRA account within 10 years, rather than stretching out the withdrawals over their life expectancy.
If you have questions about what these changes might mean for you and your specific situation, call us at (480) 507-2425. We would be happy to go over the details with you.
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