In December of 2019, President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. After becoming law on January 1, 2020, the legislation made changes to long-term retirement savings, affecting Americans at any age. Continue reading below to learn more and contact an experienced New York estate planning attorney for help preparing your estate.
What is the SECURE Act?
The following are important retirement account changes that come from the SECURE Act:
- The required minimum distribution age increased from 70 ½ to 72
- The age limit for IRA contributions was removed
- Inherited retirement account distributions must now be taken within 10 years
- New parents can take penalty-free withdrawals.
- Long-term part-time employees will now be eligible for 401(k) plans.
Required Minimum Distribution Age
People used to be required to start taking withdrawals from their traditional IRA by April 1 the year after they turned 70 ½. These are known as required minimum distributions. The new law moves this age to 72, allowing IRA owners to defer paying tax on the funds so they can continue to grow.
Age Limit for IRA Contributions
In the past, those with an individual retirement account used to only be able to contribute to their account up until 70 ½ years old. This age limit has since been removed under the SECURE Act, allowing people to contribute to their IRA as long as they still work.
Inherited Retirement Account Distributions Taken Within 10 Years
Individuals who inherited IRAs used to be able stretch out withdrawals and tax payments on distributions over their life expectancy. Under this new law, beneficiaries of retirement account owners who die after January 1, 2020 may have to withdraw assets in the inherited IRA or 401(k) within 10 years. Exceptions can include a surviving spouse, minor children, disabled and chronically ill beneficiaries, and beneficiaries who are up to 10 years younger than the IRA owner.
New Parents Can Take Penalty-Free Withdrawals
The IRS allows penalty-free early distributions from some types of retirement accounts for specific circumstances. The SECURE Act adds a new exception to this, allowing a $5,000 withdrawal after a person experiences the birth or adoption of a child.
Long-Term Part-Time Employees Eligible for 401(k) Plans
Part-time employees used to have to work a minimum of 1000 hours during a 12-month period in order to contribute to a 401(k). The new law provides a way for more part-time workers to become eligible for a 401(k) plan. Employees 21 years old or older and accrue at least 500 hours in a 12-month period for three consecutive years can contribute to a 401(k) plan.
Contact our Firm
If you or a loved one needs assistance creating an estate plan and wish to speak with an experienced attorney, contact the Law Office of Andres D. Gil, PLLC today.