In the last few weeks of 2019, the President signed into a new law the SECURE act. It has quite a few changes for retirees and pre retirees. And we figured this would be worthwhile to bring Steve on and talk through what some of those changes are and what folks need to be looking for as we look at elements of the SECURE Act.
The SECURE act started January 1, 2020. SECURE is an acronym that means Setting Every Citizen Up For Retirement Enhancements. So it allows changes to tax and changes to retirement.
SECURE Act Changes
So five things we are going to highlight here: capped IRAs, RMDs, lifetime withdrawals, QCDs, and medical expenses.
1. Capped IRAs
If you were able to put money into a retirement account or a traditional IRA in the past, that got capped. That means you couldn’t put any additional funds into it after you reach age 70 1/2. Unlike Roth IRAs or 401Ks, those don’t have an age limit if you’re still working. Traditional IRAs now are treated the same extending the age you can contribute.
As long as you have earnings or wages, you or your spouse could put money into that account. While not limited by age, these are still limited by potential income phaseouts.
So that is getting money in. How about taking money out? What are some changes there?
Any type of retirement account has what is called an RMD, (Required Minimum Distribution). And once you reached the age of 70 1/2, in the past, that is when you had to start taking money out.
This new Act put into place a new age of 72, rather than 70 1/2. So a little change there and a little bit more time to put money in to be deferred before you have to take it out.
Beyond those two big aspects are there any smaller things? Less law based, but still important for people to know?
3. Lifetime Withdrawal
The next is if you name a beneficiary and you pass away, the beneficiary previously had over their lifetime to extend or stretch out those retirement accounts or IRAs. Spouses can still stretch an inherited IRA over their lifetime.
However, non-spouse beneficiaries cannot stretch it over their lifetimes. So if you are a child and you inherited an IRA from your parents, you’d have up to 10 years to take out the entire value of the account. You can’t stretch it out over your lifetime.
4. QCDs: Qualified Charitable Distributions
The other change with the IRS is the qualified charitable distributions, meaning if you want to give to charities out of your IRA, you could.
Before, you could do it any time you start receiving RMDs at 70 1/2. Now, RMDs have changed to 72 and you would naturally think you have to wait, but that is not the fact. Actually it stays at 70 1/2, when you can start giving to charities out of your IRA.
5. Medical Expenses
And also medical expenses. Those also stay at 7.5% of your AGI. Expenses over this amount can be deductible for taxes.
So a couple things that changed. We talked about some that initially changed and something that didn’t with the SECURE Act.
That is a really great summary of the big changes. There may be videos coming down the line with even more detail. So be on the lookout for those, but until next time, if you have any questions or would like to go through any retirement questions in more detail, please let us know. We’d love to sit down with you.
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