Kiplinger’s: New Ways To Boost Your Client’s Retirement Savings
Kiplinger's Personal Finance
With the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act late last year, here are some of the highlights designed to boost retirement savings.
Unless noted, all changes start in 2020.
1. Required minimum distributions, often referred to as RMDs, begin at age 72: Required minimum distributions from 401(k) plans and traditional IRAs generally had to begin in the year you turned 70½.
The SECURE Act raises the age limit to 72, which means you can let your retirement funds grow an extra 1½ years before tapping into them. That can result in a significant boost to overall retirement savings for many seniors.
The new rules apply to those who turn 70½ in 2020 or later.
If you turned 70½ in 2019, you still have to take your first RMD by April 1, 2020, and your second by year-end 2020.
2. No IRA age cap: Under the old rules, workers could no longer contribute to a traditional IRA once they turned 70½.
That age restriction has now been eliminated. Now you can continue to put away money in a traditional IRA if you work into your seventies and beyond.
3. Stretch IRA eliminated: Gone are the rules that allowed nonspouse IRA beneficiaries to "stretch" required minimum distributions from inherited accounts over their own lifetimes.
Instead, all funds from an inherited IRA generally must now be distributed to nonspouse beneficiaries within 10 years after the year of the IRA owner's death. (The rule applies to inherited funds in a 401(k) account or other defined contribution plan, too.)
There are some exceptions to the general rule: Distributions over the life expectancy of a nonspouse beneficiary are allowed if the beneficiary is a minor, disabled, chronically ill or not more than 10 years younger than the deceased IRA owner. For minors, the exception applies only until the child reaches the age of majority, usually 18. At that point, the 10-year rule kicks in.
If the beneficiary is the IRA owner's spouse, the heir has more flexibility. Surviving spouses still have the option to roll the money into their own IRA at any time and start RMDs when they turn age 72. Or if they remain beneficiaries, they can delay taking RMDs until the deceased spouse would have turned age 72.
If you banked on having your heirs stretch the IRAs they were to inherit, it's time to overhaul your estate plans.
Some strategies to consider: doing Roth IRA conversions so your heirs will inherit tax-free income instead of taxable income from a traditional IRA, drawing down your IRA for living expenses and bequeathing other assets to heirs, and using RMDs to buy life insurance with heirs as beneficiaries for the income-tax-free death proceeds.
That age restriction to contribute to a traditional IRA has been eliminated.
Dreamstime
That age restriction to contribute to a traditional IRA has been eliminated.
Dreamstime
Send questions to [email protected]. Visit Kiplinger.com for more on this and similar money topics.
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