Part of coaching my clients through their retirement planning is being ready to make adjustments when the rules of the game change. And for many of my clients, the rules have just changed based on Congress passing what’s been called the “SECURE Act”. For some, the changes are a big deal and present new and different planning opportunities. For others, the changes are perhaps only minor. Either way, it’s good to be aware of the changes.
At a high level, here are the two big things to know:
- There’s a change in the Required Minimum Distribution (RMD) age – If you’re not yet 70.5 as of Jan. 1, 2020, you’re no longer forced to take a minimum distribution from certain qualified retirement accounts until the year in which you now turn age 72. If you turned 70.5 in 2019, you’re still under the old rules. This rule change matters most if you do not NEED to take money from your IRAs to meet retirement expenses. Why?
- Because first, I think it eliminates some confusion on when you have to start. Why did lawmakers ever start using half birthdays to begin with? I’ve never once celebrated my half birthday.
- Second, because it could mean an extra year or two of Roth conversion opportunities.
- Third, for those that are charitable, the age 70.5 opportunity to make a qualified charitable distribution has NOT changed.
- Change in RMDs for certain inherited accounts – It used to be that inherited retirement dollars could be “stretched” out over the lifetime of the beneficiary. That is no longer the case. While there is no longer a specified amount that must be distributed every year, the account must be exhausted within ten years. NOTE: this does NOT apply to spousal beneficiaries and there are special rules for disabled or chronically ill beneficiaries and certain minor children. But those rules get a little more nuanced. Why does this matter?
- First, it creates additional planning opportunities to try to limit the impact of federal income taxes by taking distributions strategically based on current and anticipated future income. High income year? Take a smaller distribution. Low income year? Take more.
- Second, it may change your estate planning and how you feel about leaving money behind, depending on the age and income of the intended heirs. Being more direct in your beneficiary designations, including charities on IRA dollars, and potentially keeping/acquiring life insurance benefits are all bigger considerations now.
A bit confusing? It sure can be. That’s why we are here, to determine the impact of these changes, whether or not they are relevant to your personal plan, and if so, communicate that to you so new plans can be made. In the meantime, we hope this keeps you a bit more in the loop. Give us a call if you have questions or concerns.
The opinion voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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