In December of last year, the Setting Every Community Up for Retirement Enhancement Act (a.k.a. the SECURE Act) was passed, and it became effective on January 1st of this year. The enclosed article explains the Act and the major changes taking place, but I wanted to point out the ones that are most likely to affect you.
First, the initial age at which you must start taking required minimum distributions (RMDs) from your traditional IRA account has changed. These annual distributions can now be put off until age 72, whereas previously they had to begin at age 701/2. However, for those of you who have already started taking distributions, this does not affect you. You must continue to take the minimum distribution each year as you have been.
Second, eligibility rules for making IRA contributions have changed. You are now able to contribute to a traditional IRA at any age as long as you have earned income that year. Previously you were no longer able to contribute after age 701/2.
Finally, the so called “stretch IRA” provision is no longer an option for most beneficiaries of IRA accounts going forward. Beneficiaries of IRA accounts must now withdraw all funds from the inherited IRA account within ten years of inheritance. They are no longer able to take minimum distributions over their own life expectancy, thus “stretching out” the IRA and
stretching out the tax liability over the years. There are a few exceptions to this. Your spouse, for instance, is still able to “stretch” the IRA over his or her lifetime. This will, however, affect how others inherit IRA accounts from you, including your children. Also, you should note that this change only applies to IRAs inherited in 2020 and going forward. For those of you who already have an inherited IRA as of 2019, you will continue to get the benefit of the stretch.
We know these changes may concern some of you, particularly the loss of the stretch IRA for your heirs. Whether we need to make any changes to your accounts and investment strategy will depend on your own individual family situation. We encourage you to come in for a meeting if you are concerned, and we will go over your goals and accounts in detail. Also, even if you don’t feel you’ll be affected by these changes, we’d still love for you to come in for an account review, particularly if we haven’t seen you in a while. Please give us a call and we’ll set up an appointment.
Kendall J. Anderson, CFA, Founder
Justin T. Anderson, President