SECURE ACT, What You Need to Know
Written By: Levine, Furman & Rubin, LLC
The SECURE Act was signed into law on December 20, 2019 and became effective on January 1,2020, creating significant changes to IRAs for the 2020 tax year.
How will this affect Inherited IRAs (Stretch IRAs)?
The SECURE Act eliminates the Inherited IRAs (Stretch IRAs). After a plan holder’s death, the entire balance of an IRA has to be withdrawn by most non-spouse beneficiaries within 10 years. (Effective only for IRA owners who die on or after January 1, 2020.)
For an IRA, you can no longer utilize the beneficiary’s life expectancy, except in the following circumstances:
- Surviving spouse
- Chronically ill heirs
- Disabled heirs
- Beneficiaries are not more than 10 years younger than the plan holder
- Minors, but only until 18. Once a minor reaches 18 years old, the 10-year rule will apply
What is the new age for Required Minimum Distributions (RMDs)?
For all accounts subject to RMDs, the SECURE Act raises the age for beginning RMDs from 70 ½ to 72 years old, effective only for those who reach age 70½ on or after January 1, 2020. For all IRA owners who reach the age of 70 in 2020, they are grandfathered into the old rule and do not have to take their first RMD in 2020 even though the RMD deadline is extended to 72.
Does the SECURE Act affect inherited Roth IRAs?
Yes, the SECURE Act would eliminate the stretch for Roth IRAs. Roth IRAs must also be withdrawn within 10 years.
Are spousal rollovers still allowed under the SECURE Act?
Yes. Spouse beneficiaries can still do a spousal rollover.
Does the SECURE Act eliminate the stretch IRA for existing inherited IRAs?
No, if the original owner of the IRA is deceased and there is an existing inherited IRA, then the existing inherited IRA will be grandfathered. The SECURE Act does not eliminate the ability to continue to stretch an existing inherited IRA.
Are Traditional IRA contributions now allowed past age 70½?
Yes. Taxpayers with earned income can now make traditional IRA contributions at any age, they are not required to stop when they reach age 70 ½. Similarly, spousal IRA contributions can now be made after the spouse reaches age 70½. This change does not apply to prior year contributions, i.e. made in 2020 for the 2019 tax year.
Is there still a 10% penalty for birth/adoption of a child?
No. A distribution up to $5,000 for the birth or adoption of a child is exempt from the 10% early distribution penalty. These amounts may be repaid to the IRA, but repayment is not required..
How will this affect my Estate Plan?
The SECURE Act may have a dramatic impact on your Estate Plan. By eliminating the “stretch IRA” a non-spouse beneficiary will have to completely withdraw the entire retirement account within 10 years of your date of death. This will dramatically impact any estate plans which name a grandchild as beneficiary of any retirement account to “super stretch” the IRA or that have designated a trust as beneficiary of a retirement account.
Our firm has reviewed the SECURE Act in great detail. We are fully prepared to help assess your estate plan and the impact, if any, the SECURE Act will have on you. Call our office at 732-238-6000 to schedule your complimentary review meeting with one of our attorneys.
