New Retirement Rules

Congress capped off last year by passing the Setting Every Community Up for Retirement Enhancement (SECURE) Act as part of a larger spending bill. This is the biggest change in retirement saving rules in more than a decade. We urge you to discuss any changes to your retirement strategy with your tax and financial professionals, but here’s a quick look at why the new law may change your approach to saving for retirement.

MORE TIME

One big change is the age when minimum required distributions (RMDs) must begin. Now, that age moves back to April 1 of the calendar year following the year in which you turn 72. Previously it was age 70 1/2. This tweak is particularly helpful if you want to delay taking RMDs as long as possible.

Congress also removed the age cap for contributing to a traditional IRA, as long as there is sufficient earned income to offset the contribution. Previously, you couldn’t contribute to one after age 70 1/2, whether or not you earned income.

LESS TIME

While Congress gives, it also takes away in the case of stretch IRAs. Some people who inherit an IRA anytime beginning in 2020 will get less time to stretch out payments. While beneficiaries used to have the ability to stretch inherited IRA assets to last their lifetimes, new rules mandate that some people withdraw all IRA assets within 10 years. There are exceptions to this rule, including surviving spouses, minor children and special-needs beneficiaries.

OTHER CHANGES

Two provisions in this spending bill will especially help younger taxpayers. The first is a new ability to take up to $10,000 tax-free from Section 529 plans to pay qualified student loans and the cost of some apprenticeships. The second is a new penalty-free exception to take up to a $5,000 distribution penalty-free from an IRA and some qualified retirement plans for a qualified birth or adoption.