SECURE Act Signed Into Law – What you need to know

Retirement Savings Calculations

The biggest change to retirement savings rules in over a decade is signed into law as part of a government funding legislation put into effect in 2020. The Setting Every Community Up for Retirement Enhancement (SECURE) Act will impact anyone with a 401K or IRA account.

The SECURE Act has many planning implications – particularly for those at retirement age. We wrote about this Act several months ago, and for the most part it appears the main provisions remain. To read this blog, please click here.

SECURE Act implications

By far, the biggest impact from this regulation is the removal of the “Stretch IRA” where non-spouse beneficiaries could take IRA distributions over their lifetime. This often resulted in substantial tax savings. Under the soon to be signed law, if you are a non-spouse that inherits an IRA, you will have to withdraw all the funds within 10 years. This means that the inheritor will have to pay more income tax along with the withdrawals. This would call for a change in the way that financial and tax planning are done for such individuals.

If you expect to bequest or inherit an IRA, either directly through a beneficiary designation or with a retirement trust, there is now a need for more careful tax planning than was required before.

One offsetting benefit in the Act is that starting age for Required Minimum Distributions (RMD) will changed from 70 ½ to 72. This applies to anyone who turns 70 ½ after December 31st, 2019. This is a positive development for retired individuals as it allows for about two more years for people to save and grow their money before they will have to worry about the tax implications of taking RMDs.

2020 Action Steps

We will be reviewing the law and will be in touch with clients to review how this impacts your planning. We expect major changes will need to be made in some cases – particularly those where young beneficiaries or retirement trusts are involved. If you have any questions, please don’t hesitate to contact us in the meantime.

Contributor

Chris Jaccard, CFP®, CFA is a lead advisor with Financial Alternatives in La Jolla, CA. When he’s not working on home improvement projects or trying to keep up with his kids, he loves to help successful families consider their alternatives and make better financial choices with the EXPERT™ Advisory Process. Schedule a time to chat about your situation or the latest project.