New legislation was signed into law at the end of December and it is called the SECURE Act (“Setting Every Community Up for Retirement Enhancement”). Here are the highlights of the legislation and what it could mean to you:
- Increase of the required minimum distribution age.
- Previously, you were required to withdraw a mandatory minimum distribution once turning age 70.5. This age was based on life expectancies from the early 1960s and had not been updated since. Therefore, the SECURE Act increases the required minimum distribution age to 72. This comes into play beginning January 1, 2020 so if you turned 70.5 in 2019, you should have taken your required distribution.
- Elimination of cap on IRA contribution.
- The maximum age to contribute to a traditional IRA used to be age 70.5 but with the SECURE Act, there is now no maximum. Having said that, you still need earned income in order to make an IRA contribution.
- Elimination of the stretch IRA.
- A stretch IRA dealt with non-spousal beneficiaries who inherited an IRA and the beneficiaries were allowed to withdraw required minimum distributions from the IRA over their lifetime. The SECURE Act now requires beneficiaries to withdraw the entire inherited IRA within 10 years. There are no required minimum distributions throughout the 10 years but the entire balance needs to be withdrawn by the end of the 10 years. This goes into effect for original owners who have passed away on or after January 1, 2020.
- Small business owners can establish a retirement plan and receive a tax credit.
- Small employers with up to 100 employees can establish a retirement plan and receive a tax credit of $250 per non-highly compensated employee.
- 529 plan funds can be used to pay student loans.
- If you have money left in a 529 plan after the student graduates, you can use up to $10,000 to pay student loan debt
- You still need to consider the potential tax implications from a state perspective.
These are only a few of the provisions included in the SECURE Act. Our team of tax and financial planning professionals can help navigate you through the new legislation and discuss ways to improve your retirement or estate plan.