You may have recently heard about the passage of the SECURE (Setting Every Community Up for Retirement Enhancement) Act, the second major change to the tax code in the past two years. Even though President Trump just signed the bill into law in December 2019, the House passed a version of it back in the summer, and the Senate subsequently worked out some technical details over the past several months. Despite these deliberations, the legislation has always enjoyed significant bipartisan support. So, even though the bill is just now getting substantial media attention, we at Truepoint have been planning for its passage for some time.
Here are some of the major changes in the SECURE Act that could affect you:
- The curtailing of the so-called “stretch IRA.” Previously, people who inherited IRAs (and other retirement accounts) could spread out the payments from those accounts over the course of their life expectancy. In other words, they could “stretch” out their payments. Under the SECURE Act, most beneficiaries of these accounts now have a maximum of 10 years to take their withdrawals. (Note that this 10-year limit does not apply to spouses and other specific beneficiary situations.)
- You can now wait longer to take payouts from your IRA. Before the SECURE Act, you were required to start taking payouts from your IRA once you reached 70 ½ years old. These withdrawals are referred to as required minimum distributions (RMDs). Now, in recognition that Americans are living—and working—later in life, the SECURE Act allows you to wait until you’re 72 before you must take RMDs from an IRA.
- You can contribute to your IRA for longer. Under previous legislation, you could only contribute to your IRA until you were 70 ½ years old. As another acknowledgment that people are working longer, the new law removes the age limitation and enables you to contribute as long as you have earned income.
These are significant changes that could affect many aspects of your financial life—from tax preparation to estate planning to investment decisions. Other changes are pertinent to fewer people, but important nonetheless, including incentives for small business owners to start retirement plans, revisions to how 529 college savings plans can be used, and new considerations for specific tax deductions.
Over the coming months, as we prepare for the implementation of this legislation, your Truepoint team members will discuss with you specific considerations for your plan, which might include shifting retirement assets and updating beneficiary designations. This dynamic, responsive, and collaborative process is not a reaction to new legislation—it’s how we always serve our clients.