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Retirement Planning: Four Tax Changes You Need to Know By Caroline Wetzel, CFP®


pacted many people’s retirement savings choices. With Tax Day approaching next month, you already may be in touch with your tax and fi nancial advisors about preparing your annual returns. Now may be an optimal time to discuss with them whether the new law affects you.


L Many people consider the law and its


changes to the retirement industry long over- due. Following is a summary of the new law and four key takeaways that my team and I have discussed with our clients which may be of interest to you.


SECURE Act Now in Place On Friday, December 20, 2019, the Set-


ting Every Community Up for Retirement (SE- CURE) Act was signed into law. The legisla- tion made headlines for a couple of reasons. It was the second time in three years that new tax regulation was passed at year-end. Additionally, and perhaps more signifi cantly, the SECURE Act offers Americans a more robust toolkit to save for retirement.


The SECURE Act gives retirees greater


fl exibility with their retirement accounts, includes changes to multiple retirement plans and tax favored accounts and plans:


• Individual Retirement Accounts (IRAs)


• Defi ned Contribution Plans (e.g. 401ks)


• Defi ned Benefi t Pension Plans • 529 College Savings Accounts


, MBA, AWMA®


ast December while many of us were preparing to celebrate the holidays, a new tax law was signed that im-


While some of the provisions are ad-


ministrative in nature, others directly impact individual investors. Most of the provisions became effective January 1, 2020.


Change 1 - IRA contributions extended to age 72


Previously, you were not able to


contribute to your Individual Retirement Account (IRA) once you turned 70 ½ years old. Now, so long as you have earned income, you can save to your traditional IRA up until age 72. ROTH IRAs contributions continue to have no age-based restrictions. How much can you contribute to your IRA? The annual contribution limit for 2020 is $6,000. If you are 50 years old or older, you can contribute $7,000.


Change 2- Requirement Minimum Distribu- tions (RMDs) start date changed to age 72


A Required Minimum Distribution (RMD) is money you legally must take out of your retirement account. Before the SECURE Act was in place, you had to start collecting your RMD from your IRA by April 1 of the year after you turned 70 ½. The SECURE Act simplifi es this age requirement by pushing back the RMD to age 72. This means that if you have not started collecting your RMDs, with the new law you can wait to begin col- lecting them until you are 72 years old. As a result, you get almost two additional years of tax-free compound growth in your IRA when your retirement account is near its peak.


Change 3 - Stretch IRAs are eliminated


In the past, if someone other than a spouse inherited an IRA, the benefi ciary could have taken the RMDs on the inherited


IRA over her lifetime. For adult children or grandchildren, the ability to “stretch” the IRA’s RMDs over 30, 40, or even 50 years of tax deferral was a very valuable tax plan- ning tool. Under the new law, non-spouse benefi ciaries of an IRA must withdraw all assets out of the inherited IRA within 10 years of the deceased account owner’s death. It is not required that the inherited IRA RMDs be collected annually; conceivably, one could empty the account in the fi nal year. This new rule also applies to 401(k) and other defi ned- contribution accounts.


Exceptions to the new 10-year rule include assets inherited by:


• Minor children


• Disabled or chronically ill benefi cia- ries


• Benefi ciaries who are less than 10 years younger than the deceased IRA owner or 401(k) participant.


Benefi ciaries of an inherited IRA or


401(k) whose original owner passed away before January 1, 2020 are not subject to this new 10-year rule.


Change 4 – 401(k) accounts more focused on retirement


The SECURE Act makes it more diffi cult


for employees to access their 401(k) for any purpose other than retirement. For example, the SECURE Act specifi cally forbids mak- ing 401(k) loans easily available through automatic credit/debit. There are a few ways to make withdrawals under the new law. The SECURE Act does allow you to withdraw $5,000 for the birth or adoption of a child. If married, each spouse can withdraw $5,000.


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