SECURE-ing Your Retirement
Financial Planning

SECURE-ing Your Retirement


“Do you feel “SECURE” about retirement? With the December 20, 2019 signing of the “Setting Every Community Up for Retirement Enhancement” Act, the federal government is hoping you do.”

Do you feel “SECURE” about retirement? With the December 20, 2019 signing of the “Setting Every Community Up for Retirement Enhancement” Act, the federal government is hoping you do. The SECURE Act was attached to a year-end appropriations bill to avoid a government shutdown and while not as extensive as the Tax Cuts and Jobs Act (TCJA), it includes 29 provisions affecting retirement and estate planning. The major changes impacting individuals have been summarized below.

Delay of Required Minimum Distributions to Age 72

If you turn 70 ½ in 2020 or beyond (born after 6/30/1949), you can delay Required Minimum Distributions (RMDs) from your retirement accounts until age 72. If you were at least 70 ½ on December 31, 2019, the old rules still apply. Qualified Charitable Distributions (QCDs) of up to $100,000 from your IRA can still begin at age 70 ½, even if you are waiting until 72 to take your RMD.

Traditional IRA Contributions

Under the new rules, you can continue to contribute to an IRA or Spousal IRA at any age if you have earned income. Previously, once you turned 70 ½ and began taking RMDs you were no longer allowed to contribute to a Traditional IRA. The 2020 limit is $6,000 plus a $1,000 catch up for those over age 50. Note that this is for 2020 going forward only – you cannot make a 2019 contribution under this provision.

It’s important to know that contributions made after age 70 ½ could reduce a future Qualified Charitable Distribution deduction. For example, if you are 71 and make a $7,000 contribution (2020 maximum plus the catch up) and want to make a $10,000 QCD, the contribution first counts against the QCD. In this scenario, $10,000 QCD - $7,000 contribution = $3,000 eligible for an above-the-line income deduction. The $7,000 counts as a traditional below-the-line charitable deduction. This rule carries forward until all contributions after 70 ½ have been exhausted.

Elimination of Stretch Provisions for Inherited IRA Beneficiaries

As of January 1, 2020, the Stretch IRA is no longer in your arsenal of estate planning strategies. Previously, any beneficiary could begin taking Inherited IRA RMDs over their lifetime. Under the new rules, the Inherited IRA has no RMD but is required to be completely distributed within 10 years. The SECURE Act exempts five types of beneficiaries from the 10-year rule:

  1. Surviving spouse
  2. Children (of the IRA owner only) under the age of majority

    • When they reach the age of majority (18 or 21 depending on the state they live in) the IRA must then be distributed within 10 years.
    • If the child is continuing their education past high school, there is an additional exception that may apply until age 26. Please contact your Becker team for additional information
  3. Disabled individuals
  4. Chronically ill individuals
  5. Individuals not more than 10 years younger than the IRA owner (i.e. siblings of approximate age)

If you inherited an IRA from someone who passed away prior to December 31, 2019, you are grandfathered in and the old rules still apply. You will continue to take RMDs based on your life expectancy.

Notably, utilizing a Trust as your beneficiary may not protect post-death assets the way you intended under the new 10-year distribution rules. If your beneficiary is a Trust, please contact your Becker team so we can work with you to ensure your IRA assets will transfer in the manner you intend.

Penalty Free Distributions for Birth or Adoption of a Child

If you birth or adopt a child, you can take up to $5,000 per parent per child out of your 401(k) or IRA to help cover costs without incurring a 10% early withdrawal penalty during the year following the event. Taxes will still need to be paid on pre-tax contributions, only the penalty has been waived. This withdrawal can be paid back to the plan over time and is not subject to annual contribution limits.

Kiddie Tax

The 2017 TCJA changed the Kiddie Tax (tax on a child’s investment income) brackets from the parent’s marginal rate to the highest tax brackets of Estates and Trusts. The SECURE Act reverses the TCJA Kiddie Tax rates back to the rate of their parents. You can elect to apply this new/old tax rate to 2018 and 2019 tax years.

529 Plan Updates

The Federal government made updates to how 529 Plan assets can be used. The cost of qualified apprenticeship programs registered with the Department of Labor are now eligible expenses. Additionally, a lifetime maximum of $10,000 can be used for student loan repayments for the account beneficiary and an additional $10,000 may be distributed for student loan repayments foreachof the beneficiary’s siblings. Student loan repayment, however, makes interest paid ineligible for tax deductions. These changes are retroactive to January 1, 2019. It’s important to review the rules for your state, as not all states elect to implement federal changes to 529 Plans. Both Oregon and Washington have adopted these new provisions.

Tax Extenders

There were a few notable tax provisions set to expire under the TCJA that have been extended through 2020. These tax extensions include:

  • Allowance of mortgage insurance premium deduction
  • Deduction for qualified tuition and related expenses
  • AGI “hurdle” rate for deducting qualified medical expense remains at 7.5%

Small Businesses

There are several provisions affecting small business owners, particularly around offering retirement plans to employees. In the interest of keeping this concise, if these changes affect you, please reach out to your Becker team for more information about these changes.

What Actions Should You Take

  • Determine when you need to begin taking RMDs.
  • Review beneficiaries on your retirement accounts (IRA, 401(k), etc.).
  • Reach out to your Becker team with any questions.