The SECURE Act – What You Need to Know
June 15, 2020 Author: Joe Paulson, CPA, Partner, Compass Pointe CPAs
With the focus and attention, rightfully so, given to the COVID-19 pandemic, the passing of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019 has, to some extent, flown under the radar for many taxpayers. We wanted to provide a brief overview of the Act and some of its more applicable provisions.
- The SECURE Act increased the age for required minimum distributions from 70 ½ to 72 years of age. This is effective for those not yet under required minimum distributions prior to January 1, 2020. NOTE – RMDs have been suspended for 2020 under the CARES Act.
- The age limitation for contributing to a traditional IRA has been eliminated. Prior to the SECURE Act, you could not contribute to a traditional IRA once you reached 70 ½. Beginning January 1, 2020, you can contribute regardless of your age so long as you have earned compensation.
- The payout period for non-spousal inherited IRAs has been reduced to ten (10) years. Previously, if you had inherited a traditional IRA, 401(k), SEP or SIMPLE from someone other than your spouse, you could “stretch” the distributions over your lifetime if you were a qualified beneficiary. You will now need to withdraw the balance by the end of the 10th calendar year following the individual’s death. There are some exceptions, such as for those who are disabled or minor children.
- The Act allows the withdrawal of up to $10,000 per 529 plan beneficiary to repay student loans. Previously, this would not have been a qualified expense under the plan and would have been subject to a 10% federal tax penalty. However, keep in mind that states’ tax treatment of this withdrawal may be different. For example, Indiana has declared that it will not consider the withdrawal of a qualified expense.
- Many taxpayer-friendly provisions had not been extended or were about to expire. The Act extended or renewed some 30 or so provisions. From many energy-related tax breaks to itemized deductions, the Act memorialized many individual and business extenders for you to consider.
If you have any questions, please do not hesitate to reach out to your Compass Pointe advisor for assistance. We are here to serve.