Happy New Year Again: Retirement Plan Guidelines for 2020 (Part 2)
This blog will focus on the major 2020 changes to distributions from retirement accounts. The last blog entry focused on the 2020 changes to contributions to retirement accounts so feel free to look back to refresh your memory.
You may have heard of the new SECURE Act which was signed into law on December 20, 2019. We know you will feel more secure to know that “SECURE” is an acronym for “Setting Every Community Up for Retirement Enhancement Act”. The government has been busy with other priorities since December 20, so many of your usual information sources, including us, have not been fully updated yet. In truth, the government officials have not all yet agreed on some of the technicalities so just call us with questions and we will work through the implications individually with you as needed.
Required Minimum Distributions (RMDs)
Participants will now be able to delay taking RMDs from their traditional IRAs until they reach age 72 (up from age 70 ½). This change only applies to those who turn 70 ½ in 2020 or later. If this applies to you, we have talked with you about it. If you are already taking RMDs, you must continue even if you are not yet 72. This is a good thing for most of us!
Inherited Retirement Accounts
Beneficiary IRAs (non-spousal) must now be completely distributed within 10 years (instead of over the lifetime of the beneficiary). The rules for distribution to a spouse have not changed – the distributions are treated as if the IRA belonged to the spouse all along. Note that this means that all the income taxes must now be paid within 10 years. This is a massive, and largely unfavorable, change for most of us.
Roth (non-spousal) Beneficiary IRAs must now also be distributed within 10 years, but there is of course no income tax due.
This change might make a Roth IRA conversion more attractive as an estate planning strategy. We will discuss with you if applicable.
Adoption/Birth Expenses
Penalty-free withdrawals from traditional retirement plans are now allowed for birth or adoption expenses, up to certain limits. Taxes must be paid on the withdrawals.