New Retirement Rules

The world gets a little more complicated every day despite our best intentions to try and keep things simple. Take the IRS code for instance. Back in 1913 when it first became effective it was two pages. Today there are more than 75,000 pages of instructions.

Congress passed the SECURE Act at the end of 2019. This new legislation makes some significant changes to retirement plans and some other areas that affect taxpayers. Here is a partial list:

 

• The required minimum distribution (RMD) age has increased to age 72. It used to be age 70 ½. People who are already age 70 ½ in 2019 must still take their RMDs.
• Under the old law a person could not contribute to their traditional IRA after age 70 ½. That age limit has been eliminated. Individuals may contribute to their traditional IRA at any age as long as they have earned income. The same rule applies to Roth IRA contributions.
• New rules for inherited retirement accounts. Under the old rule a beneficiary could “stretch” the proceeds over their lifetime. This had many advantages. The new rule is allows for a maximum of ten years only. An exception will apply for spouses. The new rule does not affect any existing plans. This new rule will only apply to accounts inherited in 2020 or later.
• Another exception to the penalty–free withdrawal list of IRAs includes up to $5,000 for birth or adoption expenses. New parents can withdraw this sum for their accounts up to the first year after birth or adoption.

Some of the other provisions include simplifying retirement plan access for small employers. A new rule where retirement plans will give lifetime monthly estimates as to how long those funds may last. This is good since it will help people see where they are and then they can decide what needs to be done in the future.

NSS does not give tax or legal advice. This is a brief highlight of the SECURE act. Individuals should always contact their tax or legal advisor for specific information about their particular situation.