Home » Retirement Planning » IRA News: SECURE Act 2.0 May Become a Reality
by Pamela Potter
We focus on matters that are of interest to senior citizens, and the laws that regulate individual retirement accounts are quite relevant. In December of 2019, the SECURE Act was enacted, and it established some new parameters for 2020 and subsequent years.
In October of this year, a bipartisan measure that has been dubbed SECURE Act 2.0 was introduced, and it would mandate additional changes to the IRA guidelines. We will look at these provisions in this post, but first, we will review the changes that have already been implemented.
Required Minimum Distributions (RMDs)
Traditional individual retirement account holders make contributions before they pay taxes on the income. They can choose to take penalty-free distributions when they are as young as 59.5 years of age, and the payouts would be subject to regular income taxes.
Because of the deferred tax arrangement, the IRS wants to start collecting its share before the account holder passes away. To make this happen, there is an age at which account holders are required to take minimum distributions.
The age was 70.5 prior to the enactment of the SECURE Act, but a provision contained within the measure raised the age to 72. Another change gave account holders the freedom to continue to contribute into their accounts after they reach the required minimum distribution age.
To provide clarity, the other type of individual retirement account that is commonly used is the Roth IRA. These changes did not impact Roth account holders, because these accounts are funded with after-tax earnings.
Since the taxes have already been collected, the IRS has never required minimum distributions for Roth account holders, and there has never been an age limit for contributions.
Rules for IRA Beneficiaries
From an estate planning perspective, the major change that was contained within the first SECURE Act eliminated a popular strategy called the “stretch IRA.”
Non-spouse beneficiaries of both types of accounts are required to take mandatory minimum distributions. The payouts to traditional account beneficiaries are taxable, and Roth account beneficiaries do not have to claim the income when they file their returns.
Beneficiaries could choose to take only the minimum that was required for as long as possible to take full advantage of the tax benefits. The strategy was particularly useful for beneficiaries of Roth accounts with robust balances.
As a result of a SECURE Act provision, this is no longer possible. For most non-spouse beneficiaries, all of the assets must now be taken out of either type of account within 10 years.
SECURE Act 2.0
Now that we have provided the review, we can move on to the pending changes. If SECURE Act 2.0 is passed in its present form, the required minimum distribution age for traditional account holders will go up to 75.
There is a $1000 savers credit for retirement plan participants with earnings that do not exceed a certain threshold. This measure would increase the credit to $1500, and the income ceiling would be raised so more people would be eligible for the credit.
401(k) account holders who are 55 years of age and older can make $6500 annual catch-up contributions above the standard contribution limit. This figure would go up to $10,000 for individuals that have reached the age of 65 if the SECURE Act 2.0 becomes a reality.
Employees would be automatically enrolled in group retirement plans, and they would have the freedom to opt out if they choose to do so. Another provision would give employers the ability to provide retirement accounts matches for employees that make qualified student loan payments.
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Pamela Potter
Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter’s goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services.
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About Pamela Potter
Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter’s goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services.
