Just before the end of 2019, President Trump signed into law the SECURE Act. This sweeping new spending bill includes two significant changes that may impact your retirement planning strategies. These changes focus on Required Minimum Distributions (RMDs) and Individual Retirement Accounts (IRAs) – but how do these changes impact you and your retirement planning strategy? Below, we’ve outlined how the Trump administration’s new budget deal could affect your retirement plan.
Required Minimum Distributions
Following the passage of the SECURE Act, RMDs will now begin at age 72, instead of the previous RMD age of 70 ½. Individuals turning 70 ½ after Dec. 31, 2019, will no longer be required to take distributions from their IRA or 401(k). Instead, they will now be required to begin to take the annual distributions at age 72.
It’s important to remember that this shift does not affect folks who are already taking RMDs. Individuals who were 70 ½ prior to Dec. 31, 2019, and already taking RMDs will continue to do so. Other than the modification to the age requirement, the RMD rules largely remain unchanged. However, individuals can now contribute to a Traditional IRA after reaching age 70 ½, as long as they are still working and have earned income. Keep in mind that these changes may impact your retirement timeline and should be discussed with a financial adviser.
Individual Retirement Accounts
The other big change regarding retirement is focused on IRAs. IRAs will now be required to be distributed within 10 years of an individual’s death – with an exception for qualified beneficiaries, including a spouse. This change reduces the “stretch” IRA for many designated beneficiaries. Under previous law, after the death of an individual, certain beneficiaries of an IRA could receive the distributions over their lifetime, which allowed the beneficiary to delay reporting the income. The new law now requires that for individuals who pass away after Dec. 31, 2019, the beneficiaries of their IRA must withdraw all of the funds within 10 years of the individual’s death.
However, there are exceptions for this requirement. For example, certain beneficiaries, such as a surviving spouse, minor child (until age 18), a disabled child or chronically ill recipient, and beneficiaries who are less than 10 years younger than the original retirement plan owner are not subject to the new 10-year requirement. This change may impact investment strategies and legacy planning, so speaking with a financial planner is recommended.
The above comments are based on the current market environment and are not intended to be a forecast of future events or be relied upon as an investment recommendation.
Justin Curtiss is an associate at the Vancouver-based investment management and financial planning firm Sustainable Wealth Management. He can be reached at justin@sustainablewealthmgt.com.
