Planning for retirement can be a challenge. We often do not think as far ahead as we should, and we often do not save as much as we should for our golden years. In addition, the retirement planning challenge gets even more difficult when you need to keep track of changes in the rules with regard to Individual Retirement Accounts (IRAs) and other financial retirement vehicles.
That is why we are here to help. At Doane & Doane, we have a number of highly experienced estate lawyers in Florida who keep track of all the legislation that may impact a client’s retirement plan. We also can take you through all of your advanced estate planning options, and help you balance which ones might be the best for you.
Accordingly, in this article we will begin to discuss (and may cover in subsequent blog posts) the “Setting Every Community Up for Retirement Enhancement Act,” better known as the Secure Act. If some of the provisions discussed below may impact you, then you may want to call us at Doane & Doane to learn more at 561-656-0200.
The Recently Enacted Secure Act
Congress, always good at naming things, recently enacted into law the Secure Act, which as noted stands for the Setting Every Community Up for Retirement Enhancement Act of 2019. The Act is truly landmark legislation that may affect how you plan for your retirement.
A good number of the dozen or so provisions in the law go into effect in 2020. So, now is the time to start figuring out how this new law may impact your tax and retirement planning. That being said, there are a few provisions that went into effect before 2020, so consulting your tax professional may also be worthwhile.
The purpose of the Secure Act was to address the fact that people are delaying retirement and working part time into their retirement years. Thus, in order to do more to ensure financial security for older Americans, the Secure Act will allow workers to continue to save, even if they find themselves working part time in their later years.
Here is a discussion of just a few of the provisions:
1. Repeal of Maximum Age for IRA Contributions
Prior to the Secure Act, individuals could not contribute to their IRAs once they reached the age of 70.5 years old. However, the Secure Act has removed that barrier. As long as someone has compensation (meaning earned income from wages or self-employment), that person may make contributions to their IRA at any age.
2. Minimum Distribution Age is Now 72
The Secure Act has raised the age when a person must begin taking minimum contributions from their IRAs or other retirement plans.
Before the Secure Act became law, IRA owners and retirement plan participants were normally required to begin taking minimum distributions from their plan or IRA by April 1 of the year after they reached the age of 70.5. That requirement actually was put in place back in the early 1960s and has not changed as the life expectancy rate has changed.
The Secure Act, however, now changes that requirement age from 70.5 to 72 years of age. Thus, after December 31, 2019 the age upon which someone must begin to take retirement plan or IRA distributions is now 72. Also, certain people who are working past age 72 could defer the minimum distribution even further.
3. Partial Elimination of “Stretch IRAs”
Prior to passage of the Secure Act, beneficiaries who received money from an IRA or retirement plan following the death of the retiree were able to “stretch” those beneficiary payments over the length of their own lives, or over the length of time they were expected to live. Specifically with regard to IRAs, this process is sometimes called a “stretch IRA.”
The Secure Act, however, has changed those rules. Starting in 2020 because of the Secure Act, beneficiaries who used to be able to stretch payments over their lifetimes, now must take the full distribution from the deceased IRA or retirement plan within ten years of the IRA owner’s or plan participant’s death.
This change applies to most non-spouse beneficiaries, but there are some exceptions for surviving spouses, children, chronically ill individuals, disabled beneficiaries, and any person who is less than ten years younger than the deceased IRA owner or plan participant.
In sum, if your retirement plan includes a “stretching” strategy, then you need to consult with an estate planning professional, like the estate lawyers in Florida at Doane & Doane.
4. Penalty-free Withdrawal for Birth or Adoption
As you may know, when you withdraw money from an IRA before you reach the age of 59.5, then you must pay a 10% early withdrawal penalty on the amount you withdraw. However, under the Secure Act, if you are taking a distribution from a retirement plan to pay for expenses related to the birth or adoption of a child, you can avoid that 10% penalty.
The penalty-free distribution, however, goes up to $5,000. Anything beyond that $5,000 will be subject to the penalty. Of course, as always, the distribution will also be taxed as income, and the Secure Act does nothing to change that rule.
Estate Lawyers in Florida Are Ready to Guide You
At Doane & Doane, we have the resources and experience to help you navigate the changes that have come with the Secure Act. Having helped many clients with their estate plan, Doane & Doane’s estate lawyers in Florida have seen first-hand how challenging disputes can arise when inheritance comes into play, and when the parents are not clear about their wishes ahead of time. Let us help you avoid those possible disputes by creating a thoughtful, sophisticated estate plan now.
So, if you think it is now time to get started on your own estate plan, give us a call. Our estate lawyers in Florida are ready to assist you and get you that peace of mind you need. Call Doane & Doane today for more information at 561-656-0200.