Question: What do you see as the most significant change to the tax law coming up in 2020?
Answer: With the clock ticking down in 2019, Congress has enacted a $1.4 trillion year-end spending bill to keep the government running. Tucked away inside this heavy piece of legislation is the Setting Every Community Up for Retirement Enhancement (or SECURE) Act. The SECURE Act is set to become effect January 1, 2020.
This new law includes a number of changes to retirement accounts.
Age Limit Eliminated for Traditional IRA Contributions
Beginning in 2020, the new law eliminates the age limit for traditional IRA contributions (formerly 70 ½). Now, people who are still working can continue to contribute to a traditional IRA (even those over age 70).
RMD Age Raised to 72
The SECURE Act also raises the age for beginning RMDs to 72 for all retirement accounts subject to RMDs.
New Exception to the 10% Penalty for Birth or Adoption
The SECURE Act adds a new 10% penalty exception for birth or adoption.
IRA Contributions with Fellowship and Stipend Payments
Additionally, the new law allows taxable non-tuition fellowship and stipend payments to be treated as compensation to qualify for an IRA (or Roth IRA) contribution.
Employer Liability Protection for Annuities in Plans
The SECURE Act provides a safe harbor for employer liability protection for offering annuities in an employer plan. This is expected to open the door for more annuity products to be available as investment choices in employer plans.
Good Bye, Stretch IRA (the BIG one)
Beginning for deaths after December 31, 2019, the stretch IRA will be replaced with a ten-year rule for most beneficiaries. The rule will require accounts to be paid out by the end of the tenth year following the year of death. There will be no annual RMDs. Instead, the only RMD on an inherited IRA would be the balance at the end of the 10 years after death. For deaths in 2019 or prior years, the old rules would remain in place.
There are five classes of “eligible designated beneficiaries” who are exempt from the 10-year post-death payout rule and can still stretch RMDs over life expectancy. These include surviving spouses, minor children, disabled individuals, the chronically ill, and beneficiaries not more than ten years younger than the IRA owner.
Comment: I believe these new rules will have a significant impact on retirement and estate planning. While the stretch IRA is essentially dead, there could be new opportunities to make IRA contributions or be able to access IRA accounts penalty-free.
As always, if you have any questions or would like to learn more, please contact Steve Shane at email@example.com or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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