The SECURE ACT (Setting Every Community Up for Retirement Enhancement ACT) is legislation designed to adapt to the changing needs of the US retirement system. People are generally living longer, more people are working contract or freelance jobs, and the nature of work is changing. This article will highlight some of the key points of this ACT, some of which may impact your California estate planning objectives. For information from a financial planning point of view, see this article from Forbes: https://www.forbes.com/sites/davidkudla/2020/01/10/four-major-highlights-of-the-secure-act/?sh=32dd845476b1
- Inherited Retirement Account.
Previously, the rules allowed a nonspouse-IRA beneficiary to “stretch” required minimum distributions from an inherited account over their own lifetime. The advantage of this old rule was that the funds could grow for years tax-free. The SECURE Act changes this old rule and now upon the death of the account owner, distributions to non-spouse individual beneficiaries must be made within 10 years.
- No Age Restriction for Contributions to Traditional IRA’s.
Previously, individuals had to be under the age of 70 ½ to contribute to a traditional IRA. Now, there are no age restrictions. This greatly expands the number of people who may be eligible to contribute. However, on caveat is that the individual still has to have eligible compensation which includes wages, salaries, tips, professional fees, bonuses and other income generating streams received from working. Commission, self-employment income, nontaxable combat pay, and military differential pay are also eligible compensation. Certain stipend, fellowship and similar payments to graduate students and difficulty-of-care payments to caregivers can also be considered income for the IRA contribution purposes.
- Required Minimum Distributions Start at Age 72, not 70 ½.
Prior to the SECURE Act, an individual was required to withdraw money from traditional IRA’s and employer tax deferred accounts such as 401 (k)’s at age 70 ½. The new rule allows individuals to wait until age 72 to withdraw money, thus allowing the funds a little longer to grow.
Consult with the Law Office of David Knecht
If you are interested in learning more about how the SECURE Act changes can impact your estate plan, contact the Law Office of David Knecht, at 707-451-4502. We are an
