If you follow the news perhaps you have heard about the recently passed SECURE Act. Without reiterating all the details (which may or may not be relevant to your personal situation), here’s what we feel are the key takeaways.
Distribution timing will change
Required Minimum Distributions (RMDs) don’t have to be taken until age 72. If you haven’t already starting taking your RMDs, this can be an opportunity to engage in proper tax planning. When you do reach age 72, your distributions may generate significant tax implications.
Ending the “Stretch IRA” features
Non-spousal beneficiaries, as of January 1st of this year, will not be able to receive withdrawals from an IRA over the remainder of their lifespan. This only applies if you haven’t already started taking distributions based on your life expectancy. If you already are taking distributions, then you can continue to do so. This change may create a need for more in depth tax planning as the entire account must be liquidated over a ten year span.
It is useful to note that the Act would not impact beneficiaries who are already taking distributions from Inherited IRA accounts.
Trusts possibly in hot water
In certain cases in which the beneficiary of the IRA is a trust, liquidation will be compulsory after the 10 year period. In cases where the beneficiary of the trust is in a high tax bracket, typically encountered in a person’s mid career, taking such a large income distribution at one time could be quite problematic. The technicalities of this are quite meaningful, so if this provision may apply to your situation it would be best to consult with your attorney.
Tax credits for small business owners
The SECURE Act will have several potential consequences for small business owners.
- A significant raise of the tax credit for small businesses who those who set up a retirement plan
- A new tax credit for using an auto-enroll provision in your retirement plans
- Better access to retirement plans for part time workers who qualify
- A higher default contribution amount for 401k plans
Taking action in 2020?
As we’re just beginning a new year, it’s a good time to sit down and take a look at how these new developments may fit into your overall financial strategy. Contact us to set up a time to talk.