I hope 2020 has started off well for you. In Mississippi, we have recently been having to choose between wearing rain gear or shorts (or both). It has been an interesting time of weather!
On the business front, did you happen to see what law was signed just before Christmas? The SECURE Act (The Setting Every Community Up for Retirement Enhancement) was signed by the President on December 20th with a January 1, 2020 effective date. This Act was part of the Spending Bill and significantly affects IRA planning.
We have summarized a few of the major changes that might affect you and your accounts. It’s worth a quick read to see if any of these apply to your current situation. Of course, contact us directly should you have any questions specific to your accounts or overall financial plan.
Required Minimum Distributions
Starting in 2020, the required minimum distribution (RMD) age changes from 70 ½ to 72. So those of you who are turning age 70 ½ in 2020 have another year and a half before you have to start distributions! If you turned 70 ½ in 2019, the old rules still apply and you must take your first distribution by April 1, 2020.
Qualified Charitable Distributions (QCDs)
Some good news from the law is that the opportunity to donate your RMD is still available, even at age 70 ½. Therefore, even though you are not required to take any distributions at age 70 ½, it could still make sense to donate from your IRA using the qualified charitable distribution up to a maximum of $100,000 per person. Utilizing this strategy allows you to give pre-tax dollars to charities rather than after-tax.
Non-Spouse Beneficiary/Inherited IRAs
Unfortunately, a quite common planning strategy called the “Stretch IRA” does not stretch as far. For spousal beneficiaries, the rules are unchanged. But for non-spouse beneficiaries, the inherited IRA must be depleted after 10 years if the IRA account holder died on or after January 1, 2020. Inherited IRAs previously set up are “grandfathered” to the old rules if the IRA owner died on or prior to December 31, 2019.
There are a few exceptions in the new rules applying to minor children, disabled and chronically ill individuals, and individuals not more than 10 years younger than the IRA account owner. Therefore, work closely with your financial planner and tax professional ensure your calculations are accurate.
Contributions into Traditional IRAs after age 70 ½
Lastly, a significant change occurred regarding contributions to Traditional IRAs after age 70 ½. Starting in 2020, every IRA account holder may make contributions to his or her Traditional IRA after the age of 70 ½ if they have earned income (W-2 or self-employment income).
We understand that changes in retirement and tax laws can be confusing, so please contact us with any questions. We are glad to help.
Here’s to a great 2020! Blessings to you in the New Year.
Important: Specific tax guidelines exists for each of these items mentioned, so be sure to talk with your tax professional before implementing any of these strategies.
*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.
Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.