New rules for retirement plans starting in 2020

We are starting the new year with a new law congress recently passed that mainly affects retirement plans and distributions from retirement plans.  The law called the SECURE Act begins after December 31, 2019.  The major parts of the SECURE Act are outlined below.

The RMD age is changing

The new law will increase the age retirees must take distributions from their retirement accounts from 70-and-a-half to 72. Keep in mind, this new RMD rule will only apply to individuals who turn 70-and-a-half after Dec. 31, 2019. For example, if a retiree turned 70-and-a-half in 2019, they would still have to take distributions beginning in 2019 and the new law would not apply.

Contributions to IRAs beyond age 70-and-a-half

Current rules do not allow for contributions to IRA accounts after age 70-and-a-half.

Under the new law, individuals with earned income will be able to continue to contribute to their IRA after age 70-and-a-half. This change may help workers that have chosen to delay retirement in order to continue to build their retirement nest egg.

Retirement account withdrawals for birth or adoption expenses

New rules will allow parents to make penalty-free withdrawals of up to $5,000 from their retirement account for expenses associated with birth or adoption.

The distributions can be made up to one year from the birth or adoption of a child and the maximum amount of $5,000 is per parent, so you will be all owed a $5,000 distribution from each of the parent’s retirement accounts, totaling $10,000.

While income tax will still have to be paid on pre-tax contributions that are withdrawn, no penalties will apply to the withdrawal, potentially saving parents 10%.

Elimination of Stretch IRAs

Under current rules, individuals that inherit an IRA can choose to distribute these assets slowly over their lifetime.

This strategy is called the “Stretch IRA” because beneficiaries keep the bulk of their inherited IRAs growing tax deferred while they stretch distributions over their lifetime.

The SECURE Act will now require that inherited IRAs be distributed within 10 years.

There are exceptions and details for this rule that should be discussed with a tax and financial advisor as this can affect estate plans that are already in place.

If you have questions regarding this new SECURE Act or any other tax related questions, please consult with a tax advisor.  If you need one, contact us, Sternbach & Rose, CPAs.

Ellen RoseContributor: Ellen Rose

Ellen Rose is a CPA with over 25 years of tax, accounting, and business experience. She is knowledgeable, client-focused accountants who make sure their clients get the best possible service and attention. Her accounting practice focuses on the needs of small businesses and start-ups. She is especially passionate about helping entrepreneurs succeed and thrive in today’s very competitive and challenging business climate. Sternbach & Rose, CPAs – Where you’re never just a number.

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