What Does the SECURE Act Mean for Your Retirement?

The SECURE (“Setting Every Community Up for Retirement Enhancement Act”) was signed into law in December, with most provisions effective January 1, 2020.

This sweeping legislation offers several adjustments to current laws surrounding retirement. Let’s go through the 3 major changes that may impact your retirement planning.

Change #1: The required distribution age for retirement accounts is now 72.

Previously, when someone reached age 70½ they were generally required to begin withdrawing money from their retirement accounts. The SECURE Act has adjusted this required distribution age to 72, beginning with IRA account owners who become 70 ½ on or after January 1, 2020.

Change #2: The required withdrawal timeline from inherited IRAs is now a maximum of 10 years.

Under the new act, beneficiaries who inherit a retirement account will be required to withdraw the amount in its entirety – and pay the related income taxes - within 10 years of the death of the original account owner. Anyone who inherited an IRA from an original account owner who passed away prior to January 1, 2020, can continue their current distribution schedule, typically over the inheritor’s life expectancy.

With this change, there’s the possibility that the inheritor’s tax obligation could go up significantly since they are required to withdraw more from the account over a shorter period of time.

Exceptions to the 10-year distribution requirement include assets left to a surviving spouse, a minor child (but only until they reach the age of majority), a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent (such as siblings or friends).

Change #3: There are no longer age limitations on contributing to IRAs.

Previously, individuals were no longer eligible to contribute to their traditional IRA once they reached age 70½. Beginning in 2020, individuals of any age will be allowed to contribute to a Traditional IRA, as long as they are working and have earned income.

Conclusion:  The SECURE Act may have important considerations for your retirement planning.  Please reach out to us with any questions.

The authors do not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to Rappaport Reiches Capital Management’s (RRCM) Form ADV Part 2 for additional disclosures regarding RRCM and its practices.