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- Penalty-Free Withdrawals: Up to $5,000 from retirement plans can be withdrawn penalty-free for expenses related to the birth or adoption of a child.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 [1] today.