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What is the SECURE Act and How Could it Affect Your Retirement?

 

The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, which originally passed the House in July, was approved by the Senate on Dec.19, 2019, and signed into law on December 20, 2019.  Effective January 1, 2020, this new law is aimed at increasing access to tax-advantaged accounts and preventing older Americans from effectively outliving their assets.

Among other things, the SECURE Act:

  • Repeals the maximum age for traditional IRA contributions, which was 70 ½;
  • Increases the required minimum distribution (RMD) age for retirement accounts up to age 72;
  • Allows long-term, part-time workers to participate in 401(k) plans;
  • Offers more options for lifetime income strategies;
  • Permits parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth/adoption of a child for qualified expenses; and
  • Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.

On the surface, the SECURE Act seems to be a beneficial, long-overdue reform in retirement law.  “With [the] passage of this bill, the House made significant progress in fixing our nation’s retirement crisis and helping workers of all ages save for their futures,” Rep. Richard E. Neal said in a statement after the bill passed the House in May.

However, there’s a catch.

Americans who inherit an IRA must now withdraw the money (and pay the taxes) within 10 years of the original account owner’s death.  Previously, if you inherited an IRA or 401(k), you could “stretch” your distributions and tax payments out over your life expectancy.  Accordingly, many people have used “stretch” IRAs and 401(k) plans as a reliable income source.

Now, however, for IRAs inherited from original owners who passed away on or after January 1, 2020, the new law requires some beneficiaries to withdraw assets from an inherited IRS or 401(k) plan within 10 years following the death of the original account holder.  This new rule does not apply to assets left to a surviving spouse, minor child, disabled/chronically ill beneficiary, or beneficiaries who are less than 10 years younger than the original account owner.

We’re here to help.

Many of these SECURE Act rule changes require proactive planning.  It is important to speak with an estate planning attorney about your financial and retirement situation.  For questions about the new  law and how to plan for this change and other estate planning matters, please contact the attorneys at Azrael, Franz, Schwab, Lipowitz & Solter, LLC.

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