How the New Retirement Secure Act Impacts You
Tim Hayes AIF®, CRPS®, AWMA®, CFS®, APMA®, CAS®
Congress recently passed, and President Trump signed, the SECURE Act. Among other things, it pushes back from age 70 1/2 to age 72 the age when someone is required to start taking their minimum distribution from their IRA, 401k, or IRA. It also allows individuals to contribute to an IRA past age 70 1/2 and makes it easier to generate annuity income from their retirement plan.
The most significant change, though, is how it treats non-spouse beneficiaries. Previously, non-spouse beneficiaries could “stretch” their required withdrawals over their lifetime. For example, a 40-year-old successful doctor who received a substantial sum from their mother’s IRA could take their required amount over their lifetime.
Thus, they could spread out their tax liability and invest those proceeds aggressively, as the Beneficiary IRA had a 30- or 40-year time horizon.
Soon, under the new law, a non-spouse beneficiary who is ten years younger than the previous IRA owner must withdraw the account by year 10. However, they don’t need to take distributions every year.
Some beneficiaries might need to adjust their thinking, maybe taking less risk with their inherited IRA to reflect the shorter time when they need to deplete the account.
Others might want to maximize their retirement plan at work to offset the higher taxable withdrawals during those ten years. These higher potential taxes, for many, come on top of the loss of SALT tax deductions from the 2017 Tax Reform Act. So, maybe you could pay down your mortgage with the proceeds if you no longer itemize.
What About Current Beneficiaries
Beneficiaries taking RMDs based on the previous rules can continue using the old law. But the non-spouse recipient of someone who passes away post-January of 2020 will be under the new regulations — making this a good time for 401k, 403b, or IRA retirement plan owners to review their current beneficiaries as well as any trusts with your attorney.
These are the opinions of Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice.
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