January 1, 2020: The Secure Act
The Secure Act, "Setting Every Community Up for Retirement Enhancement" was passed as part of the 2019 year end government funding package (on December 20). The bill was signed by the President and the Secure Act Became effective as of January 1, 2020. The Act increases Government revenues by eliminateing the ability to "stretch" IRA distributions over the lives of those that inherit qualified plans. This changes the way inherited IRAs (and other 'qualified' plans) are treated.
The key changes of the ACT include:
1) The first required distribution for Traditional IRA plans is now the year you attain age 72 (was 70 and 1/2),
2) There is no age cap on contributions to Traditional IRAs,
3) Annuities are now permitted in 401(k) plans, and
4) Post-mortem Required Minimum Distributions over the life expectancy of Designated Beneficiaries (the "Stretch") are now largely eliminated.
The New "All Money Must Come Out of the Plan by 10 Years Rule"
The new 10 Year Rule applies to a retirement plan with a balance at the participant's death. Funds must be distributed in 10 years unless the beneficiary is an eligible designated beneficiary", in which case the stretch is allowed over their lifetime. Eligible designated beneficiaries are limited to:
1) The surviving spouse,
2) A minor child, but only until they reach the age of majority,
3) A disabled individual as defined in IRC 72(m)(7), and
4) A chronically ill individual as defined in IRC 7702B(c)(2), or,
5) An individual not more than 10 years younger than the employee.
If qualified plan assets are expected to be significant in your estate, consider a conversation about The Secure Act and how your documents might need to be updated. Call our office for additional information.
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Orland Hills, Illinois 60487-4623
Paul Lechner Esq., CPA
The Lechner Group, Ltd.
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