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Home » Estate Planning » SECURE Act 2.0 Would Enact More IRA Changes

SECURE Act 2.0 Would Enact More IRA Changes

January 1, 2020Estate Planning

SECURE ActWe pay close attention to laws that impact senior citizens, and there was some big news in this regard at the end of 2019.

At that time, the SECURE Act was signed into law by the president, and it made some significant changes to the individual retirement account parameters.

Now, lawmakers are considering a sequel to the first bill that is being referred to as SECURE Act 2.0. We will share the details in this post, but before we reach that point, we will provide a review of the changes that went into effect as a result of the enactment of the first SECURE Act.

Required Minimum Distributions

Traditional individual retirement accounts are funded with pre-tax earnings, and this is a benefit in the near term. However, distributions that are accepted from these accounts are subject to regular income taxes.

If you have a traditional IRA, you can begin to take penalty free distributions when you are 59.5 years old. The early withdrawal penalty is 10 percent, and you would be required to report the income.

There are some limited exceptions to this rule, and we explained them in a recent post about IRAs and taxation.

The IRS wants to start getting their piece of the pie eventually, so there is an age at which you are compelled to take required minimum distributions (RMDs). Traditionally, this age was 70.5, but the SECURE Act increased the age to 72.

Before the enactment of this measure, traditional account holders had to stop making contributions when they reached the RMD age. Now, there is no age limit, so you can continue to contribute into this type of account without any age restrictions.

The other type of IRA that is widely utilized is the Roth account. These accounts are funded after taxes have been paid, so there is no reason for the IRS to mandate RMDs. There has never been an age limit with regard to Roth individual retirement account contributions.

Elimination of Stretch IRA

Roth account beneficiaries do not pay taxes on the distributions, but traditional account beneficiaries are required to claim the income. Non-spouse IRA beneficiaries have always been required to accept RMDs on an annual basis, and this did not change.

In the past, they could take only the minimum that was required by law for any length of time. The amount that must be accepted is based on the age of the beneficiary along with the extent of the funding.

Before the SECURE Act, they could take only the bare minimum that was required until the account was exhausted. Younger beneficiaries of well-funded Roth individual retirement accounts could use this “stretch IRA” strategy to great advantage.

A provision contained within the first SECURE Act ended the open-ended stretch. Now, beneficiaries must take all the money out of their accounts within 10 years of the time of acquisition.

SECURE Act 2.0 Proposed Changes

Now we can get to the changes that are on the table at this time. The most eye-catching provision is another increase in the RMD age for traditional account holders. It would go up from 72 to 75 years of age.

Employers would be required to enroll their employees into group retirement plans, and the employees would have the right to subsequently opt out. Another provision would allow employers to provide retirement account matches tied to employee student loan payments.

401(k) account holders that are 55 years old and older can make additional $6500 annual catch up contributions. This figure would be increased to $10,000 for individuals that are at least 65 years of age.

There is a $1000 savers credit for low and moderate income earners that contribute into individual retirement accounts. Under the terms of this new measure, it would go up to $1500, and the income limit would be increased so more people would become eligible.

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Scott Schomer, Estate Planning Attorney
Scott Schomer, Estate Planning Attorney
A graduate of Boston University School of Law, Scott P. Schomer is a frequent lecturer on estate planning and elder law issues, having discussed these important issues on local and national television. A seasoned courtroom advocate, Scott has obtained combined judgments and verdicts in excess of twenty-five million dollars for his clients. Scott has served as a member of the Los Angeles Superior Court Probate Volunteer Panel (PVP Attorney), Probate Settlement Panel and a Judge Pro Tempore. Scott's expertise has been recognized by his peers with such accolades as a life-time membership in the Multi-Million Dollar Advocates Forum, the Five Star Wealth Manager designation, and repeated nominations as California Super Lawyer.
Scott Schomer, Estate Planning Attorney
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