On December 20, 2019, Congress, in a last minute surprise move, passed the “Setting Every Community Up for Retirement Enhancement Act” or SECURE ACT, which became effective January 1, 2020. The IRS has not had the opportunity to craft many of the applicable Regulations, but they will be forthcoming. Important and key changes include:

            a.      The 70.5 year age limitation for contributions to Traditional IRA’s is eliminated.  An account holder who attained 70.5 prior to January 1, 2020 cannot do a prior year contribution for 2019, but may do “current year” contributions for 2020 and beyond, so long as income qualifications are met.

            b.       Penalty-free Withdrawals from Qualified Plans and IRAs for qualified birth and adoption distributions will allow up to $5,000 to be withdrawn without the 10% penalty, although the amount withdrawn is included in income and is taxable.  The funds must be used within one year of the birth or date of adoption.

            c.       The age at which Required Minimum Distributions must begin is increased from 70.5 years to 72 years. IRA owners who reach 70.5 after December 31, 2019 may postpone the distribution until the owner attains the age of 72. The initial RMD may be postponed until April 1 of the following year. In such case, another RMD would have to be made in that year, with both RMDs being taxable in the year taken.

            d.       529 Educational Savings Plans will now allow Tax-Free Withdrawals to pay outstanding educational loans. Effective in 2020, up to $10,000 per year (less amounts claimed as deductible interest) may be withdrawn to pay qualified loan payments for higher education expenses, as well as expenses for apprenticeship programs registered with the Secretary of Labor.

            e.       Non-spouse beneficiaries of IRAs will be required to withdraw total balance in no longer than a ten year period. Single Life Expectancy is no longer available if the owner died after December 31, 2019. If owner died prior to January 1, 2020, the non-spouse beneficiary still has the option of Single Life Payout.

            f.       If an owner of a Traditional IRA desires to make a tax free distribution to a Qualified Charity, the age to do so remains at 70.5 years. The amount of the Qualified Charitable Distribution which is tax-free is reduced by any deductible contribution contribution beginning in 2020.

            g.       The IRS will be releasing new Single, Joint and Uniform Lifetime Tables in 2021.

Should you have questions, please contact David Allen, Of Counsel with Heidelberg Steinberger, P.A., at 228-762-8021. Thanks to Patrice Konarik and Southwest Training Corp., Kendalia, Texas, for allowing the use of seminar materials in preparing this blog.