Big Changes To Required Minimum Distributions

A new law that passed at the end of 2019 will bring big changes to our retirement savings. This includes changes to required minimum distributions. We’ll talk about what’s different right after this.

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After a major delay, the SECURE Act finally passed through the Senate. It was signed into law and will take effect in 2020. There are some major changes that will impact those trying to save for retirement. And likewise, there are some big changes that impact those already retired. Today we will focus on the changes impacting current retirees.

Changes to Required Minimum Distributions

The biggest alteration affects required minimum distributions. RMD’s have been a provision of the tax code for decades. It was a way to force people to start taking money from their IRA’s and retirement plans and pay taxes.

Under the old rules, you had to start taking money out of your qualified retirement accounts the year you reached age 70 1/2.

The SECURE act eliminated the half year and delayed the required beginning date. If you haven’t already started your RMD’s, meaning you aren’t already 70 1/2, you can now wait until the year you reach age 72.

But, if you’ve already started, you have to continue. You can’t suspend them.

The law will also change the table used to calculate the required amount. But those changes won’t take effect until 2021.

Death of the Stretch IRA

The second major provision is the elimination of the Stretch IRA. This impacts non-spouse beneficiaries of IRA accounts. Under the old rules, a non-spouse beneficiary could distribute their inherited balance over a long period of time.

Now the full account must be completely distributed in 10 years. There are a few exceptions, but this is significant.

For example, under the old rules, a 50 year-old could distribute an inherited IRA over 34 years. now they have to liquidate the account 3 times as fast. Here is the problem.  This also significantly accelerates the payment of income taxes on those balances.

Please keep in mind, this only applies to those accounts who belonged to someone who died after 2019. If you already have an inherited IRA account, your schedule will remain exactly the same.

Webinar: Death of The Stretch IRA

The Stretch IRA provisions for non-spouse IRA beneficiaries has been eliminated.  We have created a short webinar (7 minutes) that explains the changes in more detail.  

No Restrictions on IRA Contributions

If you are over age 70 1/2 and still working, you can now contribute to your IRA. The caveat is you have to have earned income to make that contribution. In years past, once you reached your required beginning date, you were no longer allowed to put money in a traditional IRA.

New Laws Mean It’s Time to Review Your Plans

New laws mean you should do a quick review of your overall plans.  These changes could impact you and what you and your family want to accomplish over the long-term.  So be sure to discuss these new provisions and how they might impact you.

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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