The Ins and Outs of the SECURE Act
The Ins and Outs of the SECURE Act

The Ins and Outs of the SECURE Act



Kathryn E. McGough, Esq.
Kathryn E. McGough, Esq.

Wealth Advisor
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The Ins and Outs of the SECURE Act

What you need to know about the new legislation.


The Setting Every Community Up for Retirement Enhancement Act of 2019 and related appropriations legislation (the SECURE Act) is the biggest retirement bill passed in more than a decade. Its aim is to make saving easier by clearing away some of the hurdles: extending the time to contribute to retirement savings, improving plan administration, and simplifying existing rules.

While the new bill smooths the way for retirement savers, it also increases the tolls. As with any government legislation affecting your money, it’s important to understand exactly how the SECURE Act will impact your savings. This includes business owners with tax-qualified plans. Here’s what you need to know about the legislation.

When Your RMDs Will Start

Required minimum distributions (RMDs) allow the government to get their share of your retirement savings that have grown tax free for decades. Starting January 1, 2020, the new bill pushes the age at which you need to start withdrawing money from your retirement accounts to age 72 from age 70 ½, allowing your money to grow tax free a little longer. This applies to anyone turning 70 ½ on or after January 1, 2020. Those who turned 70 ½ last year must continue under the old rules.

You Can Contribute to Your Traditional IRA after Age 70 ½

If you are still earning income in the year you turn 70 ½ and beyond, the law will allow you to contribute to your traditional IRA up to maximum limits and enjoy the tax deduction. In other words, there is no more age restriction on traditional IRA contributions, even if you are required to take out an RMD. Working past the traditional age of 65 is a great way to shore up your retirement savings.

Smart Giving

Retirement account owners are still allowed to make qualified charitable distributions (QCDs) from their IRAs starting at age 70 ½. QCDs allow you to donate up to $100,000 directly from your IRA to charity.

These funds will not count as income to you as a traditional retirement account withdrawal would. Note that these gifts are not also deductible as charitable contributions- the IRS only allows for one tax benefit.

These charitable giving options provide a unique planning opportunity for individuals between ages 70 ½ and 72. Charitable distributions can be made during that time, which will reduce the IRA account balance. Future required distributions, and thus taxable income, would also be reduced.

If you intend to make charitable gifts, we recommend discussing options with your wealth advisor and accountant to determine the best strategy for your situation.

Watch Out for the Whammy on Your Estate Plan

The SECURE Act has eliminated the so-called “stretch” provision for most* non-spouse beneficiaries of inherited IRAs and other retirement accounts. Those who inherit retirement accounts in 2020 and beyond will be subject to a new 10-Year Rule. Under this rule, the entire inherited retirement account must be emptied by the end of the 10th year following inheritance.

Before SECURE, the optimal approach was for savers to leave their IRAs for their children or grandchildren and stretch the payout over the beneficiary’s lifetime. The inherited IRA might comfortably provide for a child’s retirement through the power of tax-deferred compounding.

The new rule kills this estate planning strategy. With the 10-year limit, it makes the IRA subject to taxation sooner. And because distributions will be made in larger increments – or all at once – this can push the beneficiary into a higher tax bracket. Those who inherit substantial retirement accounts will likely see a jump in their taxable income and tax bracket over the years in which they take distributions.

Inherited IRAs owned by trusts may lose some of their asset protection benefits after the 10-year stretch period is up. Also, certain types of trusts may be required to take the entire inherited IRA balance in the 10th year of inheritance, increasing the tax burden even further. More guidance from the IRS is needed for us to understand how the SECURE Act will impact these arrangements. If you list a trust as a beneficiary, we suggest you contact your attorney to discuss implications and possible changes for estate planning purposes.

For many, the SECURE Act will significantly impact retirement and estate planning. Because retirement savings goals are unique to each individual, it is beneficial to discuss with a trusted advisor how the changes will affect your planning.

* The new rule will not apply to spousal beneficiaries, disabled beneficiaries, chronically ill beneficiaries, individuals who are not more than 10 years younger than the decedent, and certain minor children. These individuals are still able to stretch distributions over their life expectancy.


Tags:  Americans and Saving, IRA, Retirement Planning, Retirement Savings, Savings, SECURE Act, Tax Deductions, Wealth Management

Note:  The content of this article is for guidance and information purposes only and is not intended to be construed as advice. Information provided is not intended to provide investment, tax, or legal advice.