How Can I SECURE My Retirement?

Finally, Medicare premiums went up somewhat significantly, especially for higher-income earners.

SECURE Act

Now let’s get to the SECURE act, or Setting Every Community Up for Retirement Enhancement.  The goal of the bill was to enhance retirement security around the country.  There were quite a few provisions included in this legislation but these are the most impactful: 

IRAs

Required Minimum Distributions Increased from 70 1/2 to 72

Increasing the age you must take distribution from your retirement accounts from 70 1/2 to 72 is a positive change.  This will allow retirees who don’t need income from their retirement accounts to delay their taxable withdrawals and allow their accounts to grow tax-deferred for another 1 1/2 years.  Plus, no more confusion on when you reach a 1/2 of age.  

No More Age Restriction on IRA Contributions

Prior to this change, the law prohibited workers with earned income from contributing to their IRA’s past age 70 1/2.  The SECURE act removes these restrictions allowing older workers to continue to contribute to their IRAs for as long as they have earned income (income derived from some kind of employment, not interest or trust income).  With Americans living longer, there is an increasing number of people working much later than in the past.  This is a positive change.  Note – if you’re working past age 70 1/2 you’ll still need to take your RMD after age 72 regardless of if you continue to contribute or not.

Elimination of the Stretch IRA / 10-year Distribution of Inherited IRAs

A big one here – all non-spouse beneficiaries that inherit an IRA will be required to distribute all the assets in that account within 10 years.  Prior to this, distributions were calculated by age and theoretically inherited accounts could be “stretched” to multiple generations depending on the dollar amount and age of the beneficiary.  This allowed some ability to spread out the distributions and tax liability over the lifetime of the beneficiary.

The new law now requires those accounts to be completely distributed within 10 years.  Those in their 40s and 50s inheriting retirement accounts from their parents might find themselves being forced to take big taxable distributions right in the middle of their peak earning years.  Worse, if you’d done some estate planning and created a trust to be the beneficiary of their IRA with the intention of retaining control over timing and distribution, the new law renders your efforts moot.

*If you have worked with your attorney to name your trust as the beneficiary of your IRA you will need to review this.

Please note that this provision only pertains to non-spouse beneficiaries.  Spouses, minors, and disabled/chronically ill individuals are exempt from the 10-year distribution rule.

You will probably start to hear more about the benefit of Roth conversions.  Why?  Roth IRAs do not have a required distribution age requirement for the owner. The Roth IRA can be left to a spouse, then left to their children which can let it accumulate for another 10 years before being required to distribute it under the new law.  That distribution would be tax-free.  This can get fairly complex due to the timing of taxes, Social Security, Medicare calculations, etc. For clarity, be sure to reach out to your financial advisor or CPA.