The SECURE Act
Provisions Affecting Individuals
This Tax Blast addresses changes in the SECURE Act that benefit individuals with traditional individual retirement accounts (“IRAs”) and participants in employer-provided retirement plans. The two major changes discussed below remove the age restriction on IRA contributions and extend the age by which individuals must withdraw from their retirement accounts.
Before the SECURE Act, an individual over the age of 70.5 who made a qualified retirement contribution to his or her traditional IRA was not entitled to a deduction for that contribution. Sec. 219(d)(1). This age restriction on IRA contributions discouraged some hard-working Americans over the age of 70.5 from contributing to their retirement accounts.
The SECURE Act repeals Sec. 219(d)(1), which imposed the age restriction on IRA contributions. In so doing, Congress acknowledged that Americans were continuing to work past traditional retirement ages, and the age restriction on contributions was impeding retirement savings.
These changes apply to contributions and distributions beginning on or after January 1, 2020. Thus, in the new year, individuals who continue to work and contribute to their IRAs past “retirement age” can expect to receive deductions for those contributions.
Before the SECURE Act, participants in employer-provided retirement plans and IRA owners (who had already retired) had to begin taking required minimum distributions (“RMDs”) from their plans by April 1st of the year after they turn 70.5 years old. Sec. 401(a)(9)(C)(i). The 70.5 age requirement was first applied in the early 1960s and has not been adjusted since to consider increases in life expectancy.
The SECURE Act increases the minimum age for RMDs to 72 years, which gives employees and IRA owners who are not yet ready to retire an extra year and a half to grow their retirement accounts tax-free before they must start withdrawing money.
This change applies to individuals who reach age 70.5 on or after January 1, 2020. Thus, it will have the greatest effect on individuals who: have not yet turned 70.5 years old by the end of 2019; retire after age 70.5; or do not routinely withdraw more than the RMD amount.
For more information on this Tax Blast, please contact any of the following individuals: