In the whirlwind of activity that occurs at year end, Congress went through its usual ritual. That is, to pass legislation that has sat on its’ collective desk for most of the year only to run around at the last minute to pass ‘something’ so that they can go on winter break. Many of these last minute ‘somethings’ are adjustments to tax law which are either extending provisions due to expire (or have already expired) or are clarifications to vague language in the tax code. 2019 was a little different. In addition to the normal ‘stuff’, tucked away in 1,773 pages of one of the bills are three provisions regarding IRAs:
- Change in Required Minimum Distribution Age.As of January 1, 2020, the required minimum distribution age (RMD) rises from 70 ½ to 72. If you are the original account owner of a Traditional IRA, 401k or similar account, you must start to draw money out of the account when reach a certain age. That age for 2019 and prior was 70 ½. Beginning in 2020 that age changes to 72. Unfortunately, if you already reached RMD status, this change does not affect you and you must continue to take your RMD as scheduled.
- Contributing to IRAs Past Age 70 ½.Under the new law, beginning in 2020 so long as you have earned income, you can contribute to a Traditional IRA at any age. Under the old law, you were unable to contribute to a Traditional IRA past age 70 ½. This brings Traditional IRA rules into parity with Roth IRA rules regarding age.
- Inherited IRAs.Under the new law, beginning in 2020, inherited IRAs will need to be completely distributed within 10 years. Under the old law, beneficiaries were able to ‘stretch’ these payments out over the beneficiary’s lifetime. The new law will not affect accounts inherited prior to 2020. In other words, if you inherited an IRA prior to 2020 and are ‘stretching’ it, you may continue to do so. There are a few exceptions to this change including spouses, the disabled and beneficiaries not more than 10 years younger than the account holder who inherit the IRA.
Two of these changes are positive for taxpayers. Moving the RMD age from 70 ½ to 72, albeit a small change, reflects the fact that people are living longer; and allowing those working beyond age 70 to continue to contribute to an IRA.
The last change regarding inherited IRAs will necessitate many taxpayers to revisit their estate plans as many included the ‘stretching’ strategy as part of their overall plan in distributing their assets upon death.
MidAtlantic IRA is an Administrator of Self-Directed IRAs and Retirement Plan Solutions. We strive to provide you with the most up-to-date information and stand ready to help you. Please do not hesitate to contact us at 240-575-3380