Late last year, Congress passed and the President signed the SECURE Act, which makes a number of changes which could impact both individual and business taxpayers. Here are the highlights.
How does the SECURE Act affect individuals?
- The SECURE Act imposes a new 10-year distribution maximum for death benefits from IRAs and defined-contribution plans for non-spouse beneficiaries. Under the previous structure, distributions from inherited accounts can be stretched over the life of beneficiaries to mitigate taxes. This provision requires a 10-year distribution of such accounts to the non-spouse beneficiary.
- The act also eliminates the age limit for traditional IRA contributions. Those who are still working can continue to contribute to a traditional IRA, regardless of their age, instead of eligibility to contribute ending at age 70 1/2.
- For 401(k) participants, as well as those in other defined-contribution plans, or individual retirement account (IRA) holders, the SECURE Act allows retirees to delay taking required minimum distributions (RMDs) until age 72, up from the current age of 70 1/2.
- With the burgeoning student debt, the SECURE Act also expands 529 education savings plans to include student loan repayments and the costs of apprenticeship programs under the definition of qualified higher education expenses. One exception is that student loan interest paid through tax-free 529 plan earnings is not eligible for the student loan interest deduction.
- For those impacted by future natural disasters, the SECURE Act also provides some relief in the form of qualified (presidentially-declared) disaster distributions to participants who lived in declared disaster area. Such distributions are limited to a lifetime cap of $100,000 per disaster across all plans in the plan sponsor’s controlled group
These are some of the highlights of this bill which was part of the 1700 page Further Consolidated Appropriations Act that funded the government into 2020. It is important to note that each situation is different, and if you have any questions about your own situation, please contact a Briggs & Veselka shareholder for further clarification and an analysis of the implications of your personal or business tax liabilities.