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What is the SECURE Act–and How Might It Affect the Distribution of Your IRA?

| Mar 10, 2020 | estate planning

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On January 1, 2020, a new law went into effect that every person saving for retirement should be aware of. This law was introduced as the SECURE Act–which stands for Setting Every Community Up for Retirement. The SECURE Act implements some of the biggest changes to retirement plans that the country has seen in decades, so it is crucial to know how it may impact you and your future.

The California estate planning attorneys at Galanti and Copenhaver, Inc. can help you learn more about how the SECURE Act may affect you and your estate plans. We can also answer other estate planning questions you may have, and we can assist you in getting started planning for your future. Contact the lawyers at Galanti and Copenhaver today to schedule a consultation to discuss your estate planning needs.

What You Should Know About the SECURE Act

There are some important provisions in the newly enacted SECURE Act that may affect you in the future. Having an idea of the changes that have now been implemented can help you go into your estate planning session armed with additional knowledge that will help make the process go more smoothly.

Changes to Stretch IRAs as An Estate Planning Tool

One of these provisions effectively eliminates Stretch IRAs as an estate planning tool. This change is effective for all deaths that occur after the date of December 31, 2019.

IRA stands for Individual Retirement Account and is an account that allows a person to save for their retirement. These accounts have the benefit of tax-free growth or growth on a tax-deferred basis, depending on the type of IRA.

According to the new rules set forth in the SECURE Act, funds to be received from inherited IRAs are now required to be completely withdrawn by the beneficiaries within ten years after the account owner (decedent)’s death. Previously, the beneficiary of an IRA account would have the option to extend the distributions from the inherited IRA throughout the course of his or her lifetime. 

This was a beneficial option available for younger beneficiaries, as it gave them the ability to extend the payout period over decades, allowing them to spread out the payment of income taxes during that long period of time. However, there are certain exemptions to this new rule. Your estate planning attorney can help you understand whether the exemptions apply to you if you find yourself in this situation.

Part-Time Workers Now Have Expanded Plan Eligibility

In accordance with the SECURE Act, part-time employees who have worked more than 500 hours per year for at least three consecutive years must have the ability to participate in their employer’s 401(k). The Act also allows part-time employees who have worked 1,000 or more hours during the last year to also be granted access to the employer’s 401(k) plan.

The Traditional IRA Contribution Age Limit Has Been Eliminated

Another SECURE Act provision to be aware of is the elimination of the age limit for making contributions to Traditional IRAs. In the past, individuals were barred from making contributions to Traditional IRAs once they reached the age of 70 and ½. However, the SECURE Act removes this age limit, effective beginning in 2020. For individuals who continue to work past the age of 70, this change may be very beneficial since they can now keep making their IRA contributions indefinitely.

Employer Protections for Offering Annuities

Previously, it was not uncommon for employers to be hesitant to offer their plan participants annuity contracts as one of the investment options. The reason for this was due to liability concerns. Under the SECURE Act, employers are now offered a “safe harbor,” which will protect them from liability as they select an insurer. With this change, there may be an increase in employers offering annuities as investment options.

The Age for Required Minimum Distributions from Traditional IRAs Has Been Raised

Under the SECURE Act, the age for required minimum distributions from traditional IRAs has been raised to 72 from 70 ½, previously. This allows individuals to keep their money in their IRAs for a longer period of time. It also allows them to put off having to pay income taxes on the mandatory withdrawals if they don’t quite need the money yet.

It is important to note that this new provision under the SECURE Act does not apply to people who are already over the age limit of 70 ½ or have turned 70 ½ in the year 2019. These individuals are required to continue or to start taking their required minimum distributions in accordance with the old rule. Contact us today at (707) 867-0787 or fill out our online contact form to see how we can help you.