How SECURE Should We Feel about DC’s New Tax Laws?
In the last weeks of 2019, congress passed numerous new laws that have investors scratching their heads. The Setting Every Community Up for Retirement Enhancement (SECURE) Act fall into that very category.
So, what’s the good, the bad and the ugly of the SECURE Act?
Let’s find out!
PROS:
1. Now you can contribute to your IRA beyond age 70 ½
The new law eliminates age restrictions for traditional IRA contributions as long as you have earned income.
2. Required minimum distributions (RMD’s) moved up to age 72
IRA owners catch a break in 2020 and can postpone their RMD’s until they turn 72.
3. Qualified charitable distributions (QCD’s) from your IRA
It’s a great tool to use in tax planning strategies. But it can have a negative impact if you’re not careful.
CONS:
1. Inherited IRA distributions generally must now be taken within 10 years
If you inherited an IRA on January 1st, 2020 or later, the stretch IRA is replaced with a 10-year rule for most beneficiaries. Inherited accounts prior to 2020 still carry the old rules.
2. Eligible designated beneficiaries are the exception
If you are a surviving spouse, minor child (not grandchild), disabled, chronically ill, and/or not more than 10 years younger than the IRA owner you can still qualify for a stretch IRA.
3. Trusts no longer work as planned under the SECURE Act
Your trust needs immediate review, especially if it names your IRA as a beneficiary. Seek out an estate planning specialist to explain the new laws.
PROCEED WITH CAUTION:
1. Each parent can withdraw up to $5k penalty-free from their retirement plan(s) per birth and/or adoption
This will help to pay for adoption expenses.
2. Employer plans will start to offer annuities
Many provisions of the SECURE Act are designed to make it easier for employers to offer annuities. If you’re not sure an annuity is the best option for you, get a second opinion. Annuities might pose problems down the road.
It’s time to talk to a professional financial advisor
A fiduciary financial advisor can help clarify changes in the tax code and how they impact your family and personal finances. Take this opportunity to update your planning strategies. Your plan should evolve as you do.