Don’t Forget About the SECURE Act
September 1, 2020
By: Christopher Briscoe, Vice President and Wealth Advisor, Girard, a Univest Wealth Division
Change is inevitable. We know this to be a fact of life, but no one expected the amount and severity of changes and events that have occurred in 2020 (COVID being the biggest). Despite the plethora of distractions, it is important to revisit your retirement plans and familiarize yourself with the new retirement account laws that have been in effect since January 1, 2020.
While 2019 seems like a lifetime ago, it was only back in December of last year that the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was passed, becoming effective January 1, 2020. The new provisions of this Act, initially put in place to help individuals save more and strengthen their retirement accounts, were quickly overshadowed in February and March by the pandemic and the market turmoil that followed.
The SECURE Act is not to be confused with the CARES Act, which was passed in March 2020 to try to help combat the effects the coronavirus had on individuals, the markets, and retirement accounts. Provisions such as waiving required minimum distributions for the year and allowing rollovers allowed some potential tax relief and time for IRAs to recover from the monumental downturn in the markets during the first three months of this year.
But now, as assets in our retirement accounts work to gain back losses and move forward, let us focus on discussing some of the benefits, and drawbacks, of the SECURE Act.
Before the SECURE Act, an individual was forced to begin taking a required minimum distribution in the year he or she turned 70 ½. But now, for everyone turning 70 ½ in 2020 or later, that age has been pushed back to 72, giving people some extra time to grow their assets tax deferred.
In addition, the bill allows you to make contributions to traditional IRAs past 70 ½. That means, as long as you continue to have earned income, you can contribute to your IRA and save more for your future. Before, you could no longer add to your IRA once you turned 70 ½. You now have additional time to save even if you are taking your annual RMD.
These benefits are designed to help you continue to save and be better prepared for retirement. But along with the good, there are some potential drawbacks to the SECURE Act that are worth mentioning. For example, Inherited IRAs.
For Inherited IRAs where the beneficiary is not a spouse, previous rules allowed for required minimum distributions to be ‘stretched’ out for the beneficiary’s lifetime. So, depending on the age, the IRA could stretch out for years, even decades. That is no longer the case. Annual minimum distributions are no longer required. Instead, for IRAs where the account holder died after January 1, 2020, funds must be distributed within 10 years of the death of the original owner. This is a change that could pose an unintended consequence for younger beneficiaries, especially those who may be pushed into a higher tax bracket because of these distributions.
All is not lost, as there are some eligible beneficiaries that are still exempt from this. The spouse of the decedent, a disabled or chronically ill beneficiary, as well as beneficiaries within 10 years of the decedent’s age may continue to take required minimum distributions.
If you own an IRA or a retirement plan, you need to determine what would happen to your accounts should something happen to you and the resulting impact on your beneficiaries given the SECURE Act changes. Consult with your Girard wealth advisor and tax professional to review your options and determine what makes most sense for you and your future beneficiaries.
This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. The information in this article, and any opinions expressed therein, do not constitute a recommendation or an offer to buy or sell any security or financial instrument. Viewers should consult with their financial and/or legal professionals before making any financial decisions.