MORE TIME TO GROW: CHANGES TO REQUIRED MINIMUM DISTRIBUTIONS (RMDs)

SECURE ACT CHANGES

As anyone would argue, 2020 has been a year of dramatic changes for a variety of reasons, and some of those changes began as soon as the clock struck midnight on January 1. At that point, a majority of the provisions in the SECURE (Setting Every Community Up for Retirement) Act went into effect. Several new rules for original owner-held, non-Roth IRAs and 401(k)s could provide you valuable extra time to save for retirement.

YOU CAN WAIT LONGER TO TAKE MANDATORY DISTRIBUTIONS

For years, original non-Roth IRA and retired 401(k) owners had to start taking required minimum distributions (RMDs) from their retirement accounts by April of the year after they turned 70½ years old. The SECURE Act has bumped that age up to 72. If you turned or will turn 70½ after January 1, 2020, you are not required to take distributions until the April after you turn 72 years old. That potentially gives your account an extra year and a half to grow and/or recoup value from a market downturn.

The Act is not retroactive; those born before June 30, 1949 will have to take (or continue taking) distributions starting at 70½. However, if taking earlier distributions is part of your financial plan, IRA withdrawals can be done at any time without penalty after the IRA owner turns 59½. If you are still working and have a 401(k), you may be eligible for an exception to the RMD until you retire. Furthermore, even if you otherwise don’t qualify under the new age-72 rule, the 2020 minimum distribution requirement for IRAs and defined-contribution retirement plans, such as 401(k)s and 403(b)s, has been waived.

YOU CAN CONTRIBUTE TO A TRADITIONAL IRA AT ANY AGE

Before the passage of the SECURE Act, 70½ was the latest age at which you could contribute to your traditional IRA. The SECURE Act, having changed the RMD age, has also repealed the maximum age for contributions. This means you can contribute to your IRA at any age as long as you have earned income—even if you’re 100. If you’re still working, you now have extra time to stockpile additional assets with tax deferral.

Keep in mind this change only applies to traditional IRAs you own and to which you do contribute or have contributed. Inherited IRAs and Roth IRAs have their own requirements. No changes have been made to the contribution conditions for 401(k)s or other retirement accounts (SEP IRAs, SIMPLE IRAs, etc.). Generally, as long as you are still working with the employer who sponsors the plan, you can continue to contribute to a 401(k), SEP IRA, or SIMPLE IRA, no matter your age.

If you wish to know more about how the SECURE Act has changed your situation, feel free to call us here at Day Hagan. Please share this information with anyone you think could benefit from it.

Sincerely,

Natalie Brown, CFP®
Director of Client Services
Day Hagan Private Wealth

—Written 08.31.2020.

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