The SECURE Act—also known as “Setting Every Community Up for Retirement Enhancement” took effect on January 1st, 2020.
Here are some key elements of the SECURE Act:
Starting Age of Required Minimum Distributions (RMDs)
Starting this year, if you haven’t started taking your RMD, you can delay pulling money from your IRA until age 72, a change from the current requirement of 70 ½.
- If you are currently taking your RMD, there is no change. You must continue taking your annual distributions.
- If you turned 70½ in 2019, you would still need to take your RMD by April 1, 2020.
- Only those who will turn 70½ in 2020 or later may wait until age 72 to begin taking required distributions.
Action Item: If you turn 70 ½ in 2020, we will work with you to determine the best strategy for your RMD. As always, if you are currently required to take your RMD, we will calculate and assist in the distribution.
Contributions to IRAs after Age 70½
Some are finding themselves working, in some capacity or another, past the age of 70 ½. Starting this year, if you have “earned income,” you will be able to contribute to your IRA (past the previous age limit of 70).
2020 Contribution Limits are: $7,000 ($6,000 maximum + $1,000 catch up over 50)
Action Item: There are various income caps that may limit the deductibility of your contribution. Please reach out for more information.
No more Stretch IRAs: Inherited Retirement Accounts
Prior to 2020, if you inherited an IRA or 401(k), you had the option to “stretch” the distributions over your life expectancy.
Now, inherited IRAs are required to be depleted within 10 years of receiving the account. The only exceptions are for spouses, minor children (only until age 18 in Oregon), individuals who are disabled, or beneficiaries 10 years younger than original account holder who may still stretch distributions over their lifetimes.
Action Item: Review your beneficiary designations. If you have elected a non-spouse beneficiary, you may want to contact us to discuss potential alternative elections.
Penalty Free Withdrawal for Adoption and Birth Expenses
You can now take up to $5,000 penalty free from a retirement account to cover “qualified” birth or adoption expenses.
Action Item: If you are interested in taking advantage of a tax-free withdrawal, let us know. And congrats!
Payback Student Loan Debt with 529 Funds
Prior to 2020, 529 funds could only be used for “qualified” higher education expenses. Now, you can use up to $10,000 of a 529 account to pay off student loans.
Action Item: If your child has graduated and you still have funds lingering in their 529, let’s get together to determine if this is a good strategy for student loan reduction.
Retirement Plan Start Up: Tax Credit
Some employers find the expense of setting up a retirement plan to be too costly. There is now a credit of $250 per non-highly compensated employee to enroll in a company-sponsored retirement plan.
The credit is available for companies up to 100 employees and applies over a 3-year period. Covered plans include SEP, SIMPLE, 403(b), 401(k) and profit-sharing plans.
Action Item: If you are interested in establishing a retirement plan for your company, please reach out and we will connect you with our Retirement Plan Team at The Partners Group.
As with any new laws, there are many stipulations, which can lead to confusion. We are here to help you navigate and answer any questions you may have.
Lauren Reed, CFP®, Wealth Planning Manager
Advisory services offered through TPG Financial Advisors, LLC, an SEC-Registered Investment Advisor and a wholly owned subsidiary of The Partners Group, LTD.