Published by Robert W. Huntley, CFP®, CHFC®, CKA® Founder & Wealth Advisor
You’ve likely heard by now something about the new law called the SECURE Act, which became effective on January 1, 2020.
As usual, there is a lot of noise and complication around tax law changes like this. We try and make the complex simple around here so I want to point to just 3 things to know so you can see if this new law immediately impacts you.
1. Are you already over age 70.5?
If you already turned 70 1/2 in 2019 or earlier then you keep taking your Required Minimum Distributions (RMDs) as usual, nothing changes for you.
If the answer is no, then the new law is good news for you. You’ll be able to delay taking RMDs until you turn age 72 now, instead of at age 70 1/2.
2. Do you already take RMD’s as the result of inheriting an IRA or another retirement plan?
If you already inherited an IRA from an original IRA owner who passed away prior to January 1, 2020, no changes to your current distribution schedule are required. However, for situations where the original IRA account owner dies after December 31, 2019, fewer beneficiaries will be able to extend distributions from the inherited IRA over their lifetime. Many will instead need to withdraw all assets from the inherited IRA within 10 years following the death of the original account holder. Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent.
3. Do you have a large IRA you intend to leave to your kids or grandchildren one day?
If yes, you should have a thoughtful discussion and review of your overall planning with us or whoever you rely on for wealth management advice. The old strategy of ‘stretching’ those inherited IRA’s over decades is now gone. There are a few limited exceptions but for the most part, your beneficiaries are all going to have to take the money within 10 years of the date of your death. That means there could be a large income tax liability that needs to be planned for, ideally in advance, so all options are available.
So there you have it; the complex made a little easier.
There is a lot more to this new law but it gets confusing covering too many things at one time. For many of our clients, these 3 changes are the most immediate and most relevant.
As always, let us know how we can serve you or someone you know. If you want to learn more about this new law you’ll find a link here to a recent webinar hosted by our Partner group.
Happy New Year and here’s to a successful year of connecting wealth with purpose.