The SECURE Act, effective January 1, 2020, makes significant changes to the laws affecting IRA and 401(k) plans. Key items:
You can now make IRA contributions beyond age 70½. Under the new law, you can continue to contribute to your traditional IRA past age 70½ as long as you are still working.
Required minimum distributions (RMDs) now begin at age 72 (instead of age 70½). RMDs now begin at age 72 for individuals who turn 70½ in calendar year 2020.
Inherited IRA distributions generally must now be taken within 10 years. Under prior law, if you inherited an IRA or 401(k), you could "stretch" your distributions out over your single life expectancy (thus extending the benefits of tax deferral). So-called "stretch" IRAs had become a mainstay of retirement distribution planning. Under the new law, IRAs inherited from original owners, who died on or after January 1, 2020, must be withdrawn from an inherited IRA or 401(k) plan within 10 years following the death of the account holder. Exceptions to the 10-year rule include assets left to a surviving spouse, a minor child, a disabled or chronically ill beneficiary, and beneficiaries who are less than 10 years younger than the original IRA owner or 401(k) participant.
You can withdraw up to $5,000 per parent penalty-free from your retirement plan upon the birth or adoption of a child. The new law permits an individual to take a "qualified birth or adoption distribution" of up to $5,000 from a defined contribution plan, such as a 401(k) or an IRA. The 10% early withdrawal penalty will not apply to these withdrawals and you can repay them via a rollover contribution.
Attorney Robert Adler focuses his practice on wills, trusts and estates. He can be reached at 212-843-4059 or 646-946-8327.