SECURE ACT IRA CONTRIBUTIONS & DISTRIBUTIONS
Extended Contribution Age for those Working. Dating back to 1960’s concepts, prior law prohibited contributions to a traditional IRA account for those that had reached age 70½, even if still working. This created a dilemma as life expectancies increased and individuals worked later in life to fund longer retirements. The Secure Act now permits individuals to continue contributing to an IRA, so long as they continue working.
Required Minimum Distributions. Beginning Jan. 1, 2020, the age at which an individual will be required to begin making withdrawals from their traditional retirement account will increase from age 70 ½ to 72. This change will primarily benefit retirees who don’t need the funds and have not already reached age 70½. Those who are currently 70½ or older must continue withdrawing their required minimum distributions under current rules. However, those who reach age 70½ on or after Jan. 1, 2020, are subject to the new rules and will have an extra year and a half before they need to start making mandatory withdrawals.
Stretch IRA. The Secure Act effectively removes the Stretch IRA concept as an estate planning tool. Except for a surviving spouse, who may continue to withdraw the inherited IRA account over their life expectancy, beneficiaries will be required to draw down the account over a ten (10) year period. The funds may be withdrawn incrementally over the ten (10) year period, or all in one (1) or more years (including everything in year ten (10). A disabled or chronically ill individual or child of the account owner who has not reached the age of majority will also be excluded from the ten (10) year withdrawal requirement. This provision will not affect individuals who have already inherited an IRA and will only apply to those who inherit them starting on Jan. 1, 2020. This will preclude the account from continuing to grow on a tax-deferred basis into the future.