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New regulations passed by Congress and signed into law by President Trump at the end of 2019 contain several provisions that could have a significant financial impact on your retirement savings.
The changes are included in the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which went into effect on Jan. 1. This landmark legislation marks the first major step forward by regulators in more than 10 years that is designed to help Americans save for retirement.
It’s welcome news for many Americans, especially those who are struggling to build their nest egg or simply don’t know the best approach to save for retirement. A survey by the CFP Board, a financial planning trade organization, found that nearly half of adults (48 percent) said they are not setting aside money for retirement. The same poll also revealed that two in three adults said they are not receiving retirement planning advice from a financial professional.
As you might expect with federal regulations, there are rules that will help the average American, but also provisions that are less taxpayer friendly. Provided below are three important changes to IRS regulations on retirement accounts. Please consult with your financial advisor so you know how it will affect you.
1. Age Restrictions on IRA Contributions Removed
One of the best features of the SECURE Act is that individuals who are still working past traditional retirement age can contribute to a traditional individual retirement account (IRA) as long as they receive earned income. The old regulations prevented individuals from adding to their IRA after they reached 70 ½ years of age. That’s great news for the growing number of retirement-age Americans who are still working.
2. Age Increased For Required Minimum Distributions
Another benefit of the Act is the age that individuals must begin required minimum distribution (RMDs) from their IRAs – or the minimum amount that must be withdrawn each year from an account – was increased to 72 years of age from 70 ½. Unfortunately, anyone who reached age 70 ½ in 2019 or earlier cannot take advantage of the change. The IRS also left in place a 50 percent penalty on any distribution shortfall below the RMD.
3. “Stretch” IRAs No Longer Allowed
Now for the bad news. The IRS has placed a significant restriction on inherited IRAs, commonly referred to as “stretch IRAs.” All funds held in an inherited IRA must now be distributed by the end of the 10th calendar year following the year of the IRA owner’s death. Under the old rules non-spousal beneficiaries were allowed to “stretch” the RMDs over their life expectancy. The change could have a negative tax effect on beneficiaries in their 40s or 50s, who can no longer stretch RMDs over decades. Fortunately, the IRS left unchanged rules for surviving spouses if they choose to become the owner of the IRA instead of the beneficiary, in which case the surviving spouse’s normal RMD timeline applies.
The SECURE Act ushers in some welcome – and much needed – improvements to help individuals protect and grow their wealth. I urge you to meet with your financial advisor and review your retirement plan to make sure you are on the right path to meet (and hopefully exceed) your financial goals.
About the author: Kathy Christoffel serves as market president for Argent Trust Company’s Fort Worth wealth management team where she oversees business development and provides client solutions. A certified trust and financial advisor, Kathy has 27 years of experience as a trust and wealth management professional. She is also involved with several professional organizations, including the American Bankers Association, Tarrant County Probate Bar and Institute of Certified Bankers
