Big Changes to IRA’s

At 401 Advisor, we take great pride in making sure investors are aware of legislation that affects their retirement savings and we try to ensure we keep our clients informed in a timely fashion when changes are made that affect them.  Recently a bipartisan bill was passed to help American’s save for retirement and it was signed by President Trump on 20 December 2019.  The bill is called Setting Every Community Up for Retirement Enhancement (SECURE) Act and I would like to take a few moments to review some of the provisions that are designed to positively affect our ability to save for retirement.  I will list below some of the items that apply to a broader group of people.

  • Removing maximum age limits on retirement savings, formerly capped at age 70 ½
  • Raising the required minimum distribution (RMD) age to 72 from 70 1/2.
  • Allowing penalty-free withdrawals up to $5,000 from retirement plans for the birth or adoption of a child
  • Relaxing rules on employers offering annuities through sponsored retirement plans
  • Allowing penalty-free withdrawals of up to $10,000 from 529 education-savings plans for the repayment of certain student loans
  • Revising components of the Tax Cuts and Jobs Act that raised taxes on benefits received by family members of deceased veterans, as well as students and some Native Americans
  • And to raise an estimated $15.7 billion to pay for these changes: removing the stretch IRA estate-planning strategy that permits non-spouse beneficiaries of IRAs to spread disbursements from the inherited money over their lifetime. The new limit will be within 10 years of the death of the original account holder

There are two provisions in here for people approaching retirement to pay close attention to.  The first is the new rule allowing you to invest in your IRA until age 72 now.  People are living longer and as a result are working longer.  Before the new rule, you were prohibited from contributing to your IRA after age 70 ½ even if you were still working.  Second, the bill changed the required beginning date of your RMD to 72.  For the same reason, people are working longer and living longer and delaying the start date of your RMD’s give you a little more time to grow your nest egg before you have to start drawing from it.

So if you turn 70 ½ this year you DO NOT have to start taking your distributions this year.  Now you can wait until 1 April following the year you turn 72.  For example, if you turn 72 in July of 2020, you have until 1 April 2021 to take your first RMD.     

We hope this information has been informative and as always If you have any further questions, don’t hesitate to call the office and ask one of us directly.

Jim Kilgore, CFP®


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