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The SECURE Act Becomes Law and Impacts Individuals

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Sweeping Changes to Retirement Accounts

 

On December 20, 2019 the SECURE Act, which stands for “Setting Every Community Up for Retirement Enhancement” was signed into federal law. This Act includes the most sweeping changes to retirement accounts in more than a decade. Designed to boost retirement savings, most of the changes are taxpayer-friendly measures for business and individuals.
 
Below is a very brief summary of changes. This is not intended to be a full representation of the over 1,700 page law, but rather a few notes on provisions that may be of interest to you.
 
 

Required Minimum Distributions (RMDs)

Effective for those who turned 70½ after December 31, 2019

OLD LAW
SECURE Act
IRA account holders must start taking RMDs at age 70½ (first year delay to April 1 allowed in the year turning 70½).

RMDs will now start at age 72 (or delay to April 1 after turning 72). The old law still applies and you will continue taking RMDs if you were 70½ prior to January 1, 2020.

Note: This does not impact the ability to transact Qualified Charitable Distributions (QCDs) for those over age 70½ which sends RMDs directly to charity from the IRA.

Inherited IRA “Stretch” Provision

Effective for accounts inherited from someone who passed after December 31, 2019

OLD LAW
SECURE Act
As a non-spouse beneficiary of an IRA, you were forced to take annual RMDs from the IRA based on a withdrawal rate calculated over your lifetime (determined by a table provided by the IRS). However you could take withdrawals faster. The ability to “stretch” these withdrawals over a longer time span minimized the impact of taxable income for the non-spouse beneficiary and lessened the likelihood of bumping them into a higher tax bracket. Now non-spouse beneficiaries must withdraw the inherited IRA in its entirety within 10 years of the original owner’s date of death. There is no mandate that you take withdrawals every year, but it must be fully withdrawn by the 10th year. There are a few exceptions to this rule (i.e. minor children, disabled dependents, etc.)

IRA Contributions

Effective for tax years after December 31, 2019

OLD LAW
SECURE Act
Account owners could not make IRA contributions after turning age 70½, regardless of income. There is no age limit for making IRA contributions (as long as there is earned income). Spousal contributions are also permitted.

§529 College Savings Plans

Effective January 1, 2019

OLD LAW
SECURE Act
The Tax Cuts and Jobs Act (TCJA) enacted in December of 2017 expanded the use of §529 College Savings Plans to allow for annual withdrawals of up to $10,000 if used for K-12 education expenses. The Secure Act further expands to allow apprenticeship program expenses (books, fees, supplies). Also, Qualified Education Loan Repayment distributions may be used to pay the principal and/or interest of a qualified education loan up to a limited lifetime distribution of $10,000.

Kiddie Tax

Effective January 1, 2020 retroactive to 2018 taxes

OLD LAW
SECURE Act
The Tax Cuts and Jobs Act (TCJA) changed the taxation of unearned income of certain children to become subject to the tax brackets of a Trust, instead of their parent’s tax bracket. Therefore, any income over $12,750 was subject to the 37% tax bracket.
The Secure Act reverts the taxation brackets back to the parent’s tax brackets.
Parents may elect to amend returns for 2018 and 2019 for a preferred taxation method.

Medical Expense Tax Deduction

Effective January 1, 2019

OLD LAW
SECURE Act
Prior to 2019, medical expenses could be deductible for amounts that are greater than the 7.5% rate of your Adjusted Gross Income. The TCJA had raised this rate from 7.5% to 10% for 2019 and forward. The Secure Act allows the rate to revert back to 7.5% for 2019 and 2020 only.

Withdrawal for Adoption or Birth

Effective withdrawals made after December 31, 2019

OLD LAW
SECURE Act
Withdrawals from retirement accounts before age 59½ incurred taxes and a 10% penalty for early withdrawal. Up to $5,000 may be withdrawn penalty-free (taxes still apply) for a qualified birth or adoption, if taken within one year from the date of birth or adoption. This can be done per child and per parent if each parent has a qualified account.

Consult your tax professional for advice. Information provided as an incidental service to our business as financial advisers.

Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B&E Investment Advisers, Inc., a State Registered Investment Adviser.  Business & Estate Advisers, Inc., B&E Investment Advisers, Inc. and B&E Pension Advisers, Inc. are separate entities from Valmark Securities, Inc.