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Late last month, as part of the year-end appropriations bill, the President signed into law the Setting Every Community Up for Retirement Enhancement, or SECURE, Act, which is designed to improve retirement for Americans effective January 1, 2020. The new law includes changes that impact individuals and businesses and contains a variety of important items to consider for workers, business owners, and retirees. A few of the highlights are listed below:
- The age for starting required minimum distributions (RMD) from retirement accounts has been pushed back from age 70.5 to 72 for taxpayers born after June 30, 1949. If you were born before June 30, 1949, you are still required to take your RMD in 2020. Qualified Charitable Distributions (QCD) are still allowed from IRAs and Inherited IRAs after age 70.5.
- If you are over age 70.5, you are no longer prevented from contributing to a Traditional IRA if you, or your spouse, has earned income, but beware there is a tax trap that reduces QCDs by the amount contributed to your IRA after age 70.5.
- For account owner deaths after December 31, 2019, retirement account beneficiaries can no longer “stretch” distributions over their lifetime. Instead, the account balances must be withdrawn by the end of the 10th year following the year of the original account owner’s death. There are exceptions to this rule for spousal beneficiaries, disabled or chronically ill beneficiaries, individuals who are not more than 10 years younger than the decedent, and certain minor children until they reach adult age.
- This elimination of the “stretch” provision for collective bargaining agreements, governmental plans, such as 403(b) and 457 plans, and Thrift Savings plans is not effective until January 1, 2022.
- 529 college savings account uses have been expanded for certain Apprenticeship Programs, and for repayment of up to $10,000 of the principal and/or interest of student loans.
- While no expansion has been made to allow for 529 accounts to be used for homeschooling, student loan repayment from the accounts may have planning opportunities for multiple family members.
- The tax rate on unearned income of dependent, full-time students under age 24 – the so-called “Kiddie Tax” – is now calculated on the dependent’s parent’s tax rate. Amended returns can be filed for taxpayers who used Trust and Estate income tax rates in 2018 to calculate Kiddie Tax.
- The threshold for medical expense deductions on Schedule A (itemized deductions) has been reduced to 7.5% of Adjusted Gross Income (AGI) for the 2019 and 2020 tax years.
There are many details in the SECURE Act of 2019 beyond the scope of this summary. Retirement and Tax planning will continue to be an important part of a comprehensive wealth management plan. Your Summit advisor and/or tax professional will work with you to navigate the new landscape.
Please be advised that, based upon current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS might choose to assess related to this matter.
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