On December 20, 2019, a new bill known as the SECURE Act took effect. This will impact nearly everyone’s financial planning; for some, it will be significant. Here are a few of the changes the SECURE Act brings that may have the broadest influence on your plans.
If you’re turning 70 ½ in 2020 or later
In the past, you’ve had to begin drawing money out of IRAs in the year in which you turn age 70 ½. Those who turned 70 ½ in 2019 are not affected and must still draw out of their IRA for 2019. However, those who turn age 70 ½ in 2020 or later can wait to begin drawing from their IRA until the year in which they turn 72. Often, our clients must draw income even when they don’t need the money, therefore owing taxes on it. Now, the SECURE Act buys some IRA owners a few more years to defer the tax—allowing that money to grow further.
If an IRA is inherited or an IRA owner is deceased in 2020 or later
For any IRA owner who dies in 2020, passing on those monies to heirs has become, unfortunately, a bigger tax burden. If the owner’s spouse inherits the IRA funds, they will not be affected. If a non-spouse inherits the IRA funds, however, they can no longer utilize a popular strategy known as the “Stretch IRA”. In the past, the non-spouse inheriting the IRA could keep it, drawing money each year over the rest of their life — “stretching” the tax liability over many years. Now, one must completely deplete funds by the end of the 10th year after death, pushing taxes owed on the money forward.
Other financial impacts of the SECURE Act
The SECURE Act also affects 529 College Savings Plans, 401(k) plans, student loan repayments, and even tax planning and potential tax breaks for those having/adopting a child. My fellow advisor Bill Slover goes into additional detail on several of these aspects in his blog.
No matter your situation—be sure to consult your financial advisor to learn how this new act affects your financial plans.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
BIO: Born and raised in the Central Florida area, Eric Greenhow strives for excellence — embodying the spirit and core values of Allen & Company. He is nationally recognized for his industry leadership and community service, and is a Chartered Financial Analyst® and CFP®. For more information about Eric and the Allen Investments Team, call 863.294.7411 or visit AllenInvestments.com/GoGreenhow.