The Good & Bad of the New SECURE Act

President Trump signed new legislation into law at the end of 2019 for the new Setting Every Community Up for Retirement Enhancement (Secure) Act, starting in 2020. Here is what it means if you have an IRA.

1. The Good - Required Minimum Distributions (RMD’s) Prior to 2020, when a person reached age 70 1/2, the IRS required the person to start taking RMD’s from their IRA or employee sponsored retirement plan like a 401(k). For people who have not reached age 70 ½ at the end of 2019, the new age to start taking RMD’s has been pushed back to 72. This gives 1 1/2 additional years for IRA’s to grow before being required to take minimum distributions and pay taxes on the withdrawals. A person can now continue to contribute to an IRA until age 72 if the person is working and has earned income.
   
   
2. The Bad - The Beneficiary IRA Stretch is Gone. Prior to 2020, if a person passed away and left the money to a non-spouse beneficiary, the non-spouse beneficiary could stretch the RMD’s over their own life expectancy, stretching out the tax benefits and reducing the annual RMD. The new change kills the stretch provision. There are no more RMDs required each year for the beneficiary, and the beneficiary need only ensure all of the money is taken out of  the account within 10 years.

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These new rules will only apply to IRAs that are inherited after January 1, 2020. Existing inherited IRAs are grandfathered in and still follow the old rules.