Michelle Clouse is a staff accountant at Gamwell, Caputo, Kelsch  & Co. (COURTESY PHOTO)

The Setting Every Community Up for Retirement Act, or SECURE Act, recently passed into law and includes numerous expansive changes to retirement planning. Many of the provisions go into effect in 2020 and affect most of the retirement techniques and strategies frequently used by taxpayers, including IRA accounts, required minimum distributions, inherited IRA accounts, and 529 education savings accounts. The following is a summary of some of the changes that will effect many taxpayers.

The age limitation on contributions to traditional IRA accounts has been eliminated by the SECURE Act.

Previously, no one over the age of 70½ years could contribute to their IRA regardless of whether they had qualifying compensation or not. Now, anyone of any age can contribute to a traditional IRA as long as they have compensation from earned income or self-employment.

The 2020 contribution limit is $6,000 with an additional $1,000 allowed for individuals 50 years and older. Required minimum distributions to be made after Dec. 31, 2019, from retirement accounts now begin no later than April 1 following the year the individual reaches the age of 72. Prior to the enactment of the new law, RMDs began at age 70½. This is the first change in the age requirement for RMDs since the 1960s. The age 72 threshold now in effect, is available to those born after June 30, 1949. Those born before July 1, 1949, will still use the age 70½ threshold.

Prior to 2020, beneficiaries (both spousal and non-spousal) of deceased IRA or retirement plan participants generally could stretch out the tax deferral benefits of the plans by taking distributions from the inherited accounts over their own life expectancy. This has commonly been referred to as the stretch IRA. Beneficiaries are now required to take the distributions over not more than 10 years. There are a few exceptions to this change. Surviving spouses of the account owner, minor children, chronically ill individuals, and any beneficiary not more than 10 years younger than the deceased account holder may continue under the original rules and take distributions over their life expectancy.

The rules governing the Section 529 education savings accounts or qualified tuition programs have also changed under the SECURE ACT so that distributions from a 529 plan can now be used to pay for registered apprenticeships and repayment of certain student loans of the designated plan beneficiary.

Fees, books, supplies and equipment required for a registered apprenticeship are all included under this change. Distributions of up to $10,000 are allowed to pay principal and or interest on a student loan of the beneficiary or sibling of the beneficiary. These changes are retroactive to distributions made after Dec. 31, 2018.

The new law also allows for penalty free retirement plan distributions of up to $5,000 used to pay expenses for the birth or adoption of a child. Distributions used solely for this purpose will not be subject to the 10 percent early withdrawal penalty even when the plan participant is under age 59½. The distribution will still continue to be included in taxable income.

The changes included in this legislation will change the retirement strategies many have used in the past. If you would like more information regarding the SECURE Act or how it will affect your retirement planning, please call our office to arrange an appointment to discuss your options.

Michelle is a staff accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway and can be reached at (603) 447-3356. Michelle welcomes any article feedback or questions for future article consideration.

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