Taxing Matters

One in particular addresses important retirement security measures (the SECURE Act) mentioned in our fall edition of Taxing Matters.

The intent of the Secure Every Community Up for Retirement Enhancement Act (SECURE) is to help address the unfortunate fact that one in every four Americans has no retirement savings. The relevant highlights are as follows:
The age at which an IRA holder must take a Minimum Required Distribution (MRD) has been raised to age 72 from 70 ½. This affects only those individuals who would have turned 70 ½ in 2020, not 2019. If the taxpayer was 70 ½ in 2019, they must take an MRD by April of 2020.
Good news for those continuing to work and save beyond age 70: the new law removes the age limit for contributions to traditional IRAs beginning in 2020. For those taxpayers who were 70 ½ in 2019, they will not be able to continue to fund their traditional IRA under this provision.
“Stretch IRAs” have been scaled back. A very useful estate planning strategy, stretch IRAs allowed for extended tax-deferred growth over the lifetime of the non-spouse beneficiary of an Inherited IRA. Under the new law, an Inherited IRA, Roth IRA, 401(k), or similar plans must be distributed within 10 years of the original account holder’s death unless the beneficiary is:
– The account holder’s spouse
– An individual with special needs
– Age is within 10 years of the account holder’s age

This rule applies only to IRAs inherited after December 31, 2019. Existing Inherited IRAs are not affected and will continue to pay out over a more extended period under the previous “stretch” rules.
Penalty free withdrawals of up to $5,000 from retirement plans can now be made for individuals in cases of a birth or adoption. Married couples can each withdraw $5,000 or $10,000 total.
Permitted use of 529 College Savings Plans have been expanded to allow withdrawals of up to $10,000 to repay student loans. This has also been expanded to cover siblings at the same $10,000 level.

Repeal of the current “Kiddie Tax” that required the unearned income of children be taxed at the rate for estates and trusts (often above 30%). The income will be taxed at the parent’s top marginal bracket. Recipients of survivor benefits, scholarships and certain other income often had unexpectedly higher tax bills due to the higher estate and trust rates.

While the above is an overview of the changes in the law as of December 2019, we will continue to monitor developments as Congress returns in January. Always feel free to contact us with any questions regarding tax preparation or planning, or with questions on how these issues may affect your personal or family circumstances.

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