The Setting Every Community Up for Retirement Enhancement (SECURE) Act that took effect this year, was designed to aid Americans in saving for retirement. Here are the biggest changes that can impact your IRA.
Increased Required Minimum Distribution Age
One of the biggest changes brought on by the SECURE Act is an increase in the Required Minimum Distribution (RMD) age to 72 from 70 ½. Your RMD is the minimum amount of money that you must withdraw from a tax-deferred retirement plan (IRA, 401(k), SEP).
By contributing to an IRA, you’ve experienced tax deductions on your contributions and tax-deferred growth. However, the government wants you to pay tax on that money, therefore imposing the RMD rule. With people living and working longer, this increase in age allows time for IRAs to grow untouched. Remember, if you don’t take your RMD the IRS hits you with a 50% penalty!
Removed Age Limit on IRA Contributions
Still working in your 70’s? The SECURE Act did away with the 70 1/2 age limit on contributing to traditional IRAs, allowing you to increase your retirement savings even further.
Before the SECURE Act, if you inherited an IRA from someone other than your spouse, you were required to take distributions from the account, to be stretched over your lifetime. By stretching the RMDs over your lifetime, this reduced the amount that you were required to take each year. The SECURE Act changed this by requiring beneficiaries to only stretch out their inherited IRA RMDs over 10 years after the individual passes. Since withdrawals are taxed at the beneficiary’s ordinary income-tax rate, it could mean that they are pushed into a higher tax bracket.
While the SECURE Act has its advantages, it’s best to revisit your retirement and estate planning to evaluate how it will impact you and your heirs. Send us a message below or call us at (410) 363-7211 if you’d like to discuss how the SECURE Act will impact your IRA.
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Tags: SECURE ACT