A New Law Might Affect Your Required Minimum Distributions

The fact that one quarter of Americans currently have no retirement savings has long concerned lawmakers, who continually consider various resolutions aimed at closing the gap in retirement planning. The SECURE Act, just signed into law last month, was one such attempt. The Setting Every Community Up for Retirement Enhancement Act aims to revamp several areas of retirement planning, including how we utilize IRAs.

In particular, your retirement plans might be changed by the following provisions of the new law, that affect Individual Retirement Accounts:

You can contribute to your IRA longer. Previously, contributions to IRAs stopped at age 70 ½, and required minimum distributions started. Under the new law, you can continue contributing to your IRA until age 72.

If you turned age 70 ½ in 2019, any contributions made between now and April 15 cannot be counted retroactively for 2019. They must go toward 2020 tax year contributions.

Required minimum contributions (RMDs) begin later. Those who have yet to turn 70 ½ will not be required to begin their RMDs at that age. The new deadline for taking RMDs is age 72.

If you’re still working when you reach age 72, and you do not own more than 5 percent of the company, you can postpone RMDs until you actually retire.

The new RMD provisions do not apply if you have already turned age 70 ½. Yes, you still need to take your first distribution by April 1, 2020, and another is due by December 31, 2020. Otherwise you can face a 50 percent tax penalty on the amount you were supposed to withdraw.

Yes, these changes can be a bit confusing, particularly for those on the cusp of one of these deadline ages. Call us to schedule an appointment so that we can clarify the new rules regarding your IRA contributions and distributions.