The Secure Act may change how people plan with IRAs.
The Secure Act bill passed the House vote and is now in the Senate.
What is the Secure Act?
It stands for “Setting Every Community Up for Retirement Enhancement Act of 2019.”
According to a recent Kiplinger article titled “Secure Act Calls for Changes to IRAs, RMDs,” the act will impact IRA planning.
It repeals the age cap.
What does this mean?
Currently, individuals can no longer make contributions to a traditional IRA after age 70½.
The new cap removes this limit.
What does this do?
It allows people to continue saving in their traditional IRA in much the same way as they are currently able to save at later ages into a Roth IRA.
How much can be contributed?
Those age 50 or older have a higher contribution limit of $7,000.
If your spouse is retired, you can also make contributions into an account on their behalf.
It increases the RMD age.
Currently, the age at which people must make required minimum distributions is 70½.
With the new bill, it would increase to age 72.
How does this help?
If you are able to cover expenses without tapping in to your IRA, you will not need to do so.
This will only help those who turn 70½ in 2020.
The bill would not go into effect until December 31, 2019.
Anyone turning 70½ in 2019 or earlier is subject to the old rules.
It negates the “Stretch IRA.”
While the new laws benefit the account owners and spouses, it does little to help non-spouse beneficiaries.
The heirs will no longer be able to stretch RMDs from IRAs they inherit.
What does this mean?
The RMDs will not be calculated based on the life expectancy of the heir.
Rather, all funds must be withdrawn within 10 years, subject to limited exceptions.
Larger accounts will require larger RMDs.
These larger RMDS will trigger a greater income tax bill for beneficiaries.
With these changes, you may want to review and update your estate plan.
Work with your experienced estate planning attorney to create a plan to satisfy your goals and the new laws.
Reference: Kiplinger (June 14, 2019) “Secure Act Calls for Changes to IRAs, RMDs”