What was great just got worse…and better

The “Pension Protection Act” of 2006 gave non-spouse beneficiaries of IRAs the opportunity to stretch withdrawals from the inherited IRA over their individual life expectancy, versus the old rule mandating that all IRA assets had to be withdrawn within five years.  This was a significant opportunity to defer income taxes over a much longer period of time.


The new “Secure Act” signed into law on December 20, 2019 took away this life expectancy withdrawal planning opportunity and replaced it with a 10-year withdrawal window for anyone who is NOT an eligible designated beneficiary (EDB).  An EDB is defined as an individual who is:  1) a surviving spouse, 2) a minor child of the IRA participant, 3) an individual who is either disabled or “chronically ill” or 4) an individual who is less than 10 years younger than the IRA participant.  Any of the above four types of beneficiaries still has the option to withdraw IRA assets over their life expectancy following the death of the participant.  In the case of a minor child, the 10-year withdrawal period begins when the child turns 18 (or 26 under some states’ laws).



Under prior law, an IRA owner was required to begin taking distributions from their IRA by December 31 of the year in which the participant attained the age of 70 ½ (first distribution could be deferred until April 15 of the following year, but would result in two distributions being required in that second year).  The new requirement for RMDs is December 31 of the year in which the participant turns 72.  The option to defer that first distribution until April 15 of the following year is still available.  It is interesting to note that if you attained age 70 ½ in 2019, you were required to take an RMD for 2019, and the new “age 72” rule does not apply to you.  You will still have to take an RMD in 2020, even though you might not celebrate your 72nd birthday in 2020.


Before 2020, individuals were prohibited from making contributions to traditional IRAs after they attained age 70 ½, even if they were still working.  Now an individual over the age of 70 ½ may continue to make tax deductible contributions (subject to the same limitations on adjusted gross income) as long as they have earned income (W-2 wages or 1099 self employment income).


For many clients, there will not be a substantive need to revise estate planning documents or IRA beneficiary designations.  Where retirement account balances are very large and are an integral part of an estate plan for children and grandchildren, we will be looking at the effects of the new law on those clients’ plans.  Regardless of those two criteria, it’s always a good idea to review beneficiary designations and estate planning documents at least once a year.  We look forward to meeting with all of you in 2020 and having this discussion.

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