In December, Congress passed the SECURE Act, which makes several significant changes to 401(k)s and IRAs. The changes relevant to individual tax planning and estate planning include:
Elimination of Age Limits for Contributions to IRAs: Previously, once a person reached age 70 ½, the person no longer was able to continue to contribute to traditional IRAs. Now, there is no age limit on contributions, but the contributions may not exceed the contributor’s wages or self-employment income.
Increased Age for Required Distributions: The age at which an account holder must begin to take required minimum distributions each year from their accounts has been increased from 70 ½ to 72, if the account holder has not started taking required minimum distributions.
Penalty Free Withdrawals for the Birth or Adoption of a Child: Up to $5,000 may be withdrawn from retirement accounts within one year of the birth or adoption of a child without incurring the 10% penalty for early withdrawals. The withdrawal would still be subject to ordinary income taxes.
Removal of “Stretch” Treatment of Inherited Accounts: In certain circumstances, the rules governing required distributions from inherited IRAs and retirement plans allowed beneficiaries to extend distributions over their entire life expectancy. Now, where the beneficiary of the account is not the account holder’s spouse, in most circumstances the account must be fully distributed within 10 years of the original owner’s death. The treatment of accounts where the account holder’s spouse is the beneficiary is unchanged.
If you would like to review how these changes affect you, the attorneys at our firm are ready to assist you to determine how to best benefit from these changes or minimize any adverse impact they may have on you.