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SECURE Act Impacts Retirement Accounts and College Plans

Financial Information that Impacts You


SECURE Act Impacts Retirement Accounts and College Plans

The SECURE Act, an acronym for the “Setting Every Community Up for Retirement Enhancement”, signed into law in December 2019, many provisions of the legislation that took effect Jan. 1, 2020, may impact your tax planning with us.

Some of the key changes are:

RMD age - The start age for taking required minimum distribution (RMD) has been raised from 70½ to 72 for people who would turn age 70 ½ in 2020 or later. RMD timing remains the same for people who turned age 70 ½ before 2020. Also, the updated life expectancy tables proposed by the IRS for 2021 would change how you these amounts are calculated.

New rules for inherited retirement accounts - Under current law, beneficiaries of inherited retirement accounts (often referred to as “Stretch IRAs”) can distribute those assets over their lifetime. Under the new law, those assets must be distributed within 10 years. There are exceptions for spouses, minor children, disabled individuals, and people less than 10 years younger than the decedent. The bill does not affect existing inherited accounts. It only applies to accounts inherited because of original account owner’s death in 2020 and beyond.

Penalty-free withdrawals for birth/adoption expenses - Starting in 2020, retirement plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. The $5,000 amount applies on an individual basis. Therefore, each spouse in a married couple may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

Change to 529 plans - Assets in these college-savings plans can now be used to repay up to $10,000 in student loans.

Provisions to help small businesses - Several provisions in the bill are designed to make it easier for small businesses to offer retirement plans to their employees, including a provision that will allow unrelated small businesses to band together in so-called “multiple employers plans” to offer a plan to employees.

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