Enacted at the end of 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) created big changes for both individuals and employers when it comes to tax-advantaged retirement plans. The act intends to make it easier for you to fund your own retirement, but your plan for funding and accessing your IRA may need to be adjusted. Two particular changes in the SECURE Act will have a direct effect on you and your IRA.
Required minimum distributions (RMDs) is an amount that must be withdrawn from your IRA by a certain age. This age has been adjusted to accommodate the change in life expectancies in the United States. Since life expectancies have grown, retirement plan participants will now need to take the take RMDs at age 72, rather than 70½. This could be good news for you, allowing you to make sure your money lasts longer during your lifetime.
RMDs can add to your gross income, resulting in more taxable income and changing your other tax benefits. If you find yourself in this situation, you may want to take simple or complex steps to take control of when your income is taxed. This can benefit your heirs when they inherit your IRA.
Previously, a non-spouse who inherited an IRA would be able to take out withdrawals over a lifetime to minimize the amount of taxes paid, a strategy known as the “stretch IRA.” Under the SECURE Act, non-spouses inheriting an IRA must withdrawal the entire amount within 10 years.
While this change unfortunately does away with a strategy for transferring wealth to heirs with minimal taxation, IRAs were not intended for that purpose anyway. Plus, the change won’t affect your ability to fund your own retirement (the true purpose of an IRA) and it won’t apply to your surviving spouse.
Additionally, the SECURE Act has exceptions for disabled or chronically ill individuals, children who have not reached the age of majority, and individuals who are not more than 10 years younger than the person who has died.
At Friedman Elder Law, we understand that saving for your future is important so that you don’t run out of money paying for long-term care. New laws, such as this one, can make this a little more complicated. That is why it is so important to speak with a board-certified elder law attorney to truly understand how to protect your assets. Call us today to schedule a consultation.