The SECURE Act effective 1/1/2020 creates important changes to Retirement Savings

January 16, 2020
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On December 20, 2019, President Trump signed a new law that includes a number of retirement savings and employee benefit changes. This new law changes many aspects of retirement and college savings including contributions, distributions, and inheriting retirement accounts.

Today we highlight changes Required Minimum Distributions- RMD’s- which are an important aspect of financial planning for many of our clients. Our goal today is to highlight some significant changes to the rules that govern RMDs.

Prior to Jan 1, 2020, the age triggering RMDs for employer plans and traditional IRAs was 70 ½. The age has now increased to 72. Note that only applies to people who haven’t already attained age 70 ½ before 12/31/19. In other words, account holders who turned 70 ½ in 2019 and those that are currently receiving RMDs are still required to take RMDs in 2020. Account holders who turn 70 ½ on or after 1/1/2020 will have their RMD postponed until they reach age 72.

Applicable plans include: 401(a), 401(k), 403(b), governmental 457(b) plans and traditional IRAs.

Additionally, there are new RMD rules for payments to beneficiaries from defined contribution plans and IRAs. This will have an immediate impact for beneficiaries and their options where the original account holder dies on or after 1/1/2020. For original account owners who were deceased on or before 12/31/2019, the old rules are still in effect.

The new rule effectively eliminates the “stretch” option for non-spouse beneficiaries if such portion will be distributed over the beneficiary’s life or a period not exceeding their life expectancy, and distributions begin within one year of death.

The same penalty applies - a 50% IRS penalty could be levied if your RMD is not taken on time