The “Setting Every Community Up for Retirement Enhancement” Act was recently passed into law and makes some major changes to federal tax law as it relates to retirement and related planning. Changes most applicable to our clients are briefly described below.
The Good News: The law increases the age for required minimum distributions (RMD) from age 70 ½ to age 72. This only applies to those who turn 70 ½ after 2019. Those who are currently required to take their RMD must continue to do so.
Contributions to IRA accounts are now permitted to those 70 ½ and older as long as one has earned income. With people working longer into their 60’s and 70’s, this gives people an additional opportunity to shelter income for a longer period of time.
The Bad News: For those who inherit IRA’s, there is a major change in the amount of time certain beneficiaries can take to withdraw assets from the account. The old law allowed most beneficiaries to withdraw funds over their life expectancy, thereby deferring tax for many years depending on the age of the beneficiary. The new law for decedents dying after 12/31/19 requires most beneficiaries to withdraw the assets and pay tax within 10 years. Spouses are a notable exception. This obviously may drastically reduce the amount of time one may defer tax on retirement assets. It will be important for beneficiaries to contact their tax advisor at Robert F. Murray to determine how and when to draw the funds to maximize after-tax cash flow.