SECURE ACT Flashcards
SECURE Act
Identify the acronym:
SECURE Act
Setting Every Community Up for Retirement Enhancement Act
SECURE Act
When was the SECURE Act signed into law?
The Secure Act was signed into law on December 19, 2019.
SECURE Act
Identify the purpose of the SECURE Act
The bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.
SECURE Act
What are some key takeaways of the SECURE Act?
- The SECURE Act became law on Dec. 19, 2019.
- The SECURE Act will make it easier for small business owners to set up “safe harbor” retirement plans that are less expensive and easier to administer.
- Many part-time workers will be eligible to participate in an employer retirement plan.
- The Act pushes back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ to 72, and allows traditional IRA owners to keep making contributions indefinitely.
- The Act mandates that most non-spouses inheriting IRAs take distributions that end up emptying the account in 10 years.
- The Act allows 401(k) plans to offer annuities.
SECURE Act
Explain the stretch IRA strategy.
- A stretch IRA was an estate planning strategy that applied to an IRAs inherited by a non-spouse beneficiary.
- It is a financial strategy, used mainly on traditional IRAs, that allowed people to stretch out the life—and thus the tax advantages—of the account.
- Stretching out an IRA gives the funds in the account more time—potentially decades—to compound tax-deferred.
- A very young beneficiary could stretch out distributions for decades.
- By using the stretch strategy, an Individual Retirement Account (IRA) could be passed on from generation to generation, taking advantage of tax-deferred and/or tax-free growth of the assets within it.
- Under the new law, non-spouse beneficiaries will have to withdraw all the funds in the inherited IRA within 10 years from the death of the original account owner.
- It applies to IRAs inherited after Dec. 31, 2019.
SECURE Act
Explain the RMD of an IRA
- The account owner has to begin taking the required minimum distribution (RMD) by April 1 of the year after turning 72 (another provision of the SECURE Act).
- It upped the RMD age to 72—unless a taxpayer was already 70½ or older as of Dec. 31, 2019.
- The RMD is calculated by taking the account balance on Dec. 31 of the previous year and dividing that number by the number of years left in the owner’s life expectancy (as listed in the IRS’s “Uniform Lifetime” table).
- Each year, the RMD is calculated by dividing the account balance by the remaining life expectancy.
- Under the old rules, non-spousal beneficiaries had to start withdrawing funds from the IRA too—even those who inherited Roth IRAs, which don’t carry RMDs for the original account holder.
- But here was the good part: They could base the RMDs on their own life expectancy. The younger the beneficiary, the lower the annual RMD.
- The change will only affect certain non-spouse beneficiaries who want to keep inherited accounts open for as long as possible to reap the tax advantages. In other words, “rich” folks with lots of financial self-discipline.
SECURE Act
Explain how the RMD change will not affect eligible designated beneficiary.
- The Secure Act’s anti-taxpayer RMD change also will not affect accounts inherited by a so-called eligible designated beneficiary.
- An eligible designated beneficiary is:
- the surviving spouse of the deceased account owner
- a minor child of the deceased account owner
- a beneficiary who is no more than 10 years younger than the deceased account owner
- a chronically-ill individual (as defined)
- Under the exception for eligible designated beneficiaries, RMDs from the inherited account can generally be taken over the life or life expectancy of the eligible designated beneficiary, beginning with the year following the year of the account owner’s death. Same as before the Secure Act.
What are the RMD dates to keep in mind?
- Born on or after July 1, 1949, your RMD age is now 72.
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Born on or before June 30, 1949, your RMD age remains 70 1/2, because you turned 70 1/2 before the SECURE Act took effect.
- Having said that, the CARES Act waives all RMDs that were supposed to be taken in 2020.
How are Qualified Charitable Distribution (QCD) from a Traditional IRA affected?
- The age at which you can take Qualified Charitable Distribution will continue to be age 70 1/2.
What is the age limit for contributions to a Traditional IRA for those working past 70 1/2?
You can continue to make contributions to your IRA past age 70 1/2, assuming you meet the income requirements to contribute to an IRA.
