Recent tax law changes could help you save more for retirement plan.
The SECURE Act, signed into law in late 2019, made changes that you’ll want to know about.
You can continue to contribute to a traditional IRA if you’re working.
Before 2020, traditional IRA contributions weren’t allowed past age 70½. Now, individuals of any age can contribute to a traditional IRA as long as he or she has compensation, which generally means earned income from wages or self-employment.
If you work part time after you retire, or you do some work as an independent contractor, you may be able to continue saving in your IRA if you’re otherwise eligible.
The required minimum distribution (RMD) age was raised from 70½ to 72.
Before 2020, retirement plan participants and IRA owners generally had to begin taking RMDs from their plans by April 1 of the year after the year they reached age 70½. The age 70½ requirement was first applied in the early 1960s; until recently it hadn’t been adjusted to account for increased life expectancies.
For RMDs after December 31, 2019, the age at which individuals must begin taking distributions from their retirement plans or IRAs has increased from 70½ to 72.
‘Stretch IRAs’ have been partially eliminated.
If a plan participant or IRA owner died before 2020, their beneficiaries (spouses and non-spouses) generally could stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the life or life expectancy of the beneficiaries. This was sometimes called a “stretch IRA.”
However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most non-spouse beneficiaries are generally required to be completed within 10 years. Therefore, the “stretch” strategy is no longer allowed for those beneficiaries.
There are some exceptions to the 10-year rule. It’s still allowed for:
The surviving spouse of a plan participant or IRA owner
a child of a plan participant or IRA owner who hasn’t reached the age of majority
A chronically ill individual
Any other individual who isn’t more than 10 years younger than a plan participant or IRA owner.
Beneficiaries who qualify for this exception generally may take their distributions over their life expectancies.
More changes ahead
These are some of the changes included in the SECURE Act. There’s bipartisan support in Congress to make more changes to promote retirement saving. Legislation called the SECURE Act 2.0 was introduced last year in the House, but it’s unclear if or when it may be enacted.
We’ll let you know about any new opportunities. In the meantime, if you have questions about your situation, don’t hesitate to contact us.