The SECURE Act and the CARE Act impact your IRA.
The year 2020 has impacted everyone.
And not necessarily in a good way.
Across the globe, COVID-19 has left panic and loss in its wake.
Loved ones have passed away.
Jobs have been lost.
Stocks have plummeted.
According to a recent Milwaukee Business Journal article titled “IRA planning tips for changes associated with the SECURE and CARES acts,” legislation in 2020 will continue to impact Americans entering or planning for retirement.
The SECURE Act went into effect January 1, 2020, and made several changes to rules governing IRAs.
What are they?
One rule addresses Required Minimum Distributions (RMDs).
If you turned 70½ on or after December 31, 2019, you do not need to take your RMD until you turn 72.
If you were younger than age 70½ before the start of 2020, you must still take your RMD.
It is often wise to defer taking distributions from your IRA until you are required to do so.
In addition to RMD changes, beneficiary rules also changed.
In the past, stretch IRAs were a popular estate planning strategy.
With the passing of the SECURE Act, stretch IRAs became ineffective.
The new rules generally require any non-spousal beneficiary of an IRA to drain the full amount the IRA within 10 years of the day the original IRA owner died.
However, there is an exception for those who fall into an “Eligible Designated Beneficiary” category.
Who does this include?
This category includes a disabled or chronically ill beneficiary, the surviving spouse, a child under age 18, and a beneficiary who is fewer than 10 years younger than the original owner.
Those who fall into this category can take distributions during their own life expectancy.
For those who are minor children, the 10 year withdraw time limit does not begin until they reach age 18.
If you planned to have your IRA paid into a trust, you may need to revisit your plan with your estate planning attorney.
A final change involves IRA contributions.
If you have earned income, you can continue to contribute to a Roth IRA.
There is no longer an age limit cap.
With a Roth IRA, your assets can grow tax free and withdrawals are also tax free.
Do you plan to make a Qualified Charitable Distribution?
If yes, you can contribute up to $100,00 each year from your IRA to offset your RMD and minimize your tax liability from traditional IRA distribution income.
The CARES Act also impacts how people utilize their IRAs.
This act was passed in Spring 2020 to address the economic effect of COVID-19.
According to the CARE ACT, the deadline for making your 2019 IRA contributions was extended to July 15, 2020.
Those who are younger than 50 can contribute up to $6,000 for 2019.
Those who are age 50 or older can contribute up to $7,000.
RMDs are also waived for 2020.
What if you need to undo an RMD?
You may be able to do so, if you meet specific qualifications.
What are they?
The RMD must have been taken between February 1 and May 15.
The money must be recontributed or rolled over before July 15.
Only one rollover can be made per person in the past 12 months.
Life expectancy payments do not qualify to be rolled over.
The CARE Act also allows for penalty-free IRA withdrawals up to $100,000 for certain situations.
Who is eligible?
Those who have been diagnosed with COVID-19 and SARS-COV-2 or have had a spouse or dependent diagnosed.
Those who have had unemployment or reduced hours at work as outlined by the Secretary of the Treasury.
Although there is no 10 percent early withdrawals penalty, any distributions are still taxable as income.
With the CARES Act guidelines, it is especially important to keep detailed records.
Just the tax reporting details have yet to be determined.
When making decisions regarding your IRA, it is helpful to know what rules apply in 2020.
Reference: Milwaukee Business Journal (June 1, 2020) “IRA planning tips for changes associated with the SECURE and CARES acts”