Avoiding a partial government shutdown, a massive year-end spending bill was recently passed by Congress and signed into law by President Trump. Part of that bill, the Setting Every Community Up for Retirement Enhancement, or S.E.C.U.R.E. Act, will do more long-term good than harm. My assessment comes despite the sketchy grammar applied to naming this significant financial makeover.
While championed by the annuity industry, the Secure Act includes many changes to non-annuity forms of retirement accounts. Details of the Act are being continuously updated and published, and as they are, we will do our best to explain new provisions in understandable terms. Highlights include:
- Repeal of Age Limits for Traditional IRA Contributions. Many Americans are working beyond age 70-1/2, and those workers were not able make Traditional IRA contributions until now; there is no longer an age limit.
- Required Minimum Distribution (RMD) Age. Owners of Traditional IRAs and other tax-qualified retirement accounts were mandated to begin taxable withdrawals at age 70-1/2 (never mind what an idiotic age that was), but that has been changed to age 72. This affects anyone who was born in 1950 or later.
- Loss of “Stretch IRAs” for Inherited Retirement Accounts. After 2019, there is no longer a stretch provision allowing an inherited retirement account to be distributed over the beneficiary’s lifetime. Instead, IRS no longer cares how quickly or slowly money is withdrawn and taxed, so long as it is fully withdrawn within 10 years following the year of death.
- Smaller Required Minimum Distributions (RMDs). IRS has rewritten Life Expectancy Tables to reflect our increasing lifespans. Starting in 2021, less money will be required to be withdrawn every year, reducing taxable income and preserving assets for longer lives.
- Universal application of lowered RMD. The Secure Act allows people who are already taking RMDs to use the new Life Expectancy Tables, reducing withdrawal amounts beginning in 2021.
- Qualified Charitable Distributions (QCDs) were continued “as is,” meaning that people of age 70-1/2 and up can still make direct charitable donations without losing their tax deduction.
- “Kiddie Tax” rates were restored to their pre-2018 level, corresponding to the parents’ tax rates, rather than the excessive Trust tax rates from the Tax Cut and Jobs Act of 2017.
A batch of the usual “tax-extenders” passed, as well. These are the small items that Congress is too unfocused to legislate, so they wait until year-end to “kick the can down the road’ another year at a time. Again, those provisions are numerous and affect relatively few people, so we will not address them here. The Secure Act presents a mixed bag, but all-in-all I give it a ‘thumbs up.”
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