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How Does the SECURE Act Impact RMDs?

** This article has been revised from its original version which was published on December 20, 2019.

The Setting Every Community Up for Retirement Enhancement Act (the SECURE Act) was part of the spending bill legislation passed by Congress in 2020. It was followed by the SECURE Act 2.0, which expanded the law designed to increase retirement savings for individuals and small businesses.

The SECURE Act significantly changed the Required Minimum Distribution (“RMD”) requirements for inherited retirement accounts by delaying the required beginning age. However, the biggest impact affects your loved ones. Your designated beneficiaries may be disqualified from the wealth transfer technique, commonly known as the “Stretch IRA”.

The Four Major Changes to Retirement Planning

  1. Extending the Required Minimum Distribution to Age 72– Instead of beginning required minimum distributions of age 70 ½, the date has been increased to age 72 for those who were not already 70 ½ at the end of 2019. So, the first RMD must occur by April 1st of the year after attaining age 72. This change allows retirement savings to be tax-deferred for an additional one to two years, making it last longer for retirement.
  2. Limiting the “Stretch” for Post-death Required Minimum Distributions from Inherited Retirement Accounts – Most designated beneficiaries will need to take distributions from an inherited retirement account within a ten (10) year period instead of stretching the distributions over their life expectancies. This tax-generating provision accelerates the depletion of inherited retirement accounts.

Exceptions to this rule include surviving spouses, minor children, individuals with disabilities or chronic illnesses, and those who are less than ten (10) years younger than the deceased retirement account holder. Trusts for individuals with disabilities qualify for the life expectancy method under the SECURE Act.

  1. Repealing the Age Limit for Traditional IRA Contributions– People working past age 70 ½ are now allowed to continue contributing to Traditional IRAs, as is permitted with 401(k) plans and Roth IRAs.
  2. Expanding Access to Annuities in Retirement Accounts– Annuities inside of a 401(k) plan are permitted, which will allow more sources of retirement income.

The SECURE Act 2.0 created even more flexibility related to retirement savings and tax planning for individuals and small businesses. Studies indicated that by 2050 many people would outlive their retirement income anywhere between eight and 20 years. New laws attempt to close that gap.

The age to begin required minimum distributions was bumped to 73, and by 2033 it will be age 75. Penalties for late withdrawals have also been reduced. 401(k)s, and IRAs will now allow catch-up contributions for those in their 60s. The idea is to boost retirement savings while reducing taxable income. There are many more changes made by the SECURE Act 2.0. Contact our estate planning attorneys in New York to learn more.

Retirement Strategies and Opportunities

As part of retirement planning, it’s important to analyze the projected RMDs and understand when to start taking the RMD to minimize income taxes. For example, Qualified Charitable Contributions from an IRA directly to a charity will satisfy the RMD requirement while avoiding income tax. Roth IRA conversions are another strategy that can be implemented to move taxable IRA funds into Roth IRAs that are not subject to RMDs at age 72, providing more control over income. Proper retirement and estate planning are critical due to the accelerated distributions of inherited retirement accounts under the SECURE Act.

For individuals with disabilities or chronic illnesses, this is an opportunity to have inherited IRAs paid out to a Supplemental Needs Trust, allowing the individual to maintain government benefits and stretch the IRA over the individual’s lifetime.

Russo Law Group, P.C., analyzes the impact the SECURE Act and 2.0 has on our clients’ retirement planning. It’s important to consult with and retain knowledgeable estate planning attorneys in New York who can provide legal services and advice about retirement and tax planning.

For more information or to review or update your retirement and estate plan, we invite you to contact our law firm to speak with one of our experienced elder law and estate planning attorneys at 1 (800) 680-1717.

Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530

This Post Has 3 Comments

  1. If you are between 70 1/2 & 72, may you still take a Qualified Charitable Distribution from your IRA even though you’re no longer required to take a RMD? Thank you.

    1. Thanks for reaching out to us.

      If you are still in need of assistance, our law firm is available to assist you.
      We would need to have a more detailed discussion about your particular situation to properly advise you.
      I will address any questions you may have regarding our legal services.
      Please feel free to contact our office at 516-683-1717.
      Please note this reply is informational only and not legal advice. You should seek the services of an attorney for legal advice.

      Sincerely Yours
      Janet Corsetti, Client Service Coordinator

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