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What Is The SECURE Act And What Does It Have To Do With Income Tax?
On December 20, 2019, President Trump signed the SECURE (Setting Every Community Up for Retirement Enhancement) Act into law and most of its provisions became effective on January 1, 2020. The SECURE Act includes many provisions that may affect a person’s existing retirement savings or ability to save for retirement, and may affect certain beneficiaries who have inherited a retirement account from a deceased person.
A few of the key provisions include:
- The age when an individual is required to start taking a minimum distribution from their IRA and 401K accounts has increased from age 70 ½ to age 72.
- There is no longer a maximum age limit for making contributions to a traditional IRA, as long as you continue to work.
- Workers should receive annual statements from their employers, which include an estimate of how much their retirement plan assets are worth and an estimate of the monthly income over their lifetime.
- Small business employers may be eligible for certain tax credits intended to encourage them to set up a retirement plan for their employees.
- There is a greater flexibility to use 529 plan (education account) assets.
- Some beneficiaries of inherited IRAs will be subject to a 10-year rule for withdrawal and will no longer be able to stretch the withdrawals over the lifetime of the beneficiary. From an income tax standpoint, this means that some beneficiaries could pay more in income tax relating to these withdrawals, if the withdrawals are required to occur during their prime income earning years when there are likely to be in a higher income tax bracket. There is a list of eligible designated beneficiaries (EDB’s) who are exempt from the 10-year rule, or for whom the 10-year rule is delayed, including: surviving spouse, minor children (until they reach age of majority), disabled or chronically ill individuals, and/or beneficiaries who are less than 10 years younger than the deceased owner.
These are simply a few of the many provisions contained in the SECURE Act. In order to understand how the SECURE Act may affect you, we would encourage you to have a thorough review of your retirement accounts and estate planning documents with your investment advisors, attorney, certified public accountant or other qualified professional. Please contact Bosshard Parke, Ltd. for more information.