In mid-December, as part of a massive spending bill that was passed to avoid a government shutdown, a retirement savings bill known as the SECURE Act was passed by Congress and signed into law by President Trump on December 20th. The "Setting Every Community Up for Retirement Enhancement" Act was passed by the House of Representatives in May with a vote of 417-3, in a rare showing of bipartisanship. However, the bill had been stuck in limbo in the Senate since then.
There are a number of provisions within the bill, which was passed primarily to help small businesses provide more opportunity for retirement savings plans for their employees, that will impact the clients of Impel Wealth Management.
First and foremost, the act raises the required minimum distribution age, which had been 70 1/2 years old for more than 30 years, to age 72 starting in calendar year 2020. For our clients who turned 70 1/2 last year, they will need to continue taking their required minimum distributions going forward.
Secondly, in a very congress like way, the age for making Qualified Charitable Distributions from your IRA REMAINED at 70 1/2 years old. This is something we will need to pay attention to and we believe will likely cause confusion for many people going forward. It gives us the opportunity to make contributions to 501(c)(3), qualified charities with pretax dollars from your IRA one and a half years before you have to start taking your RMD's. This is especially important for our clients that can no longer itemize deductions under the new tax law.
In addition, Congress, in it's never ending search for additional tax revenue, did away with beneficiary or stretch IRA's. Clients will no longer be able to name their children as a contingent beneficiary of their retirement accounts AND have them take annual required minimum distribution's based on their child's life expectancy. This will be a major change for many of our clients who had expected that their children would be able to stretch the tax deferral and compounding of their retirement dollars for 30 years or more. Under the new rules, the child beneficiary will have 10 years to take out the remaining retirement plan dollars and pay the taxes.
The law contains many other provisions that we will be talking with you about in our future client meetings and financial planning reviews. These include:
- Eliminating the age limit for making contributions to IRA's, as long as you have earned income.
- Adding the ability to take a distribution from your IRA, up to $5000, for birth or adoption expenses without a 10% penalty.
This is probably the most significant piece of tax legislation related to retirement planning and our clients that we have seen in over a decade. We wanted to make sure you are aware of it as soon as possible. We know that the news and noise of the presidential election, the impeachment and geo-political issues sometimes drown out more pertinent issues that are applicable to you, our friends and clients. We will be discussing this with you in detail, at our future meetings. Our goal is to make sure that you understand how these significant changes will affect you and your family's financial goals as we continue "Moving Life Forward" together