Understanding the key elements of the SECURE Act
The SECURE Act, signed into law recently, introduces significant changes impacting retirement and tax planning starting in 2020. Here are the key provisions affecting individuals:
- Repeal of Traditional IRA Age Limit: Individuals can now contribute to a traditional IRA regardless of age, as long as they have earned income.
- RMD Age Increase: The age to start Required Minimum Distributions (RMDs) from retirement accounts is raised from 70½ to 72 for those who turn 70½ after December 31, 2019.
- Changes to Stretch IRAs: Non-spouse beneficiaries must generally withdraw inherited retirement account funds within 10 years of the original owner’s death, ending the previous “stretch” strategy.
- Expansion of 529 Plans: Funds from 529 plans can now be used for registered apprenticeships and up to $10,000 for student loan repayments.
- Kiddie Tax Reversal: The TCJA’s tax rates for children’s unearned income are reverted to pre-2018 rules, benefiting children, including survivors of deceased military personnel and first responders.
- Penalty-Free Withdrawals: Up to $5,000 from retirement plans can be withdrawn penalty-free for expenses related to the birth or adoption of a child.
- IRA Contributions for Non-Taxable Fellowship Payments: Taxable non-tuition fellowship and stipend payments can now be used as compensation for IRA contributions.
- Treatment of Tax-Exempt Payments: Tax-exempt difficulty-of-care payments are now considered compensation for calculating retirement plan contribution limits.
To learn how you can take advantage of the tax saving opportunities of the SECURE Act, contact a ShindelRock tax professional today.