As 2019 draws to a close, Congress made three significant changes to the tax code regarding IRAs. In the last few days of the Congressional year, Congress passed two spending bills to keep the government running for another year.
Tucked away among 1,773 pages of one of the bills are three provisions regarding IRAs:
1. Change in Required Minimum Distribution Age. The required minimum distribution age (RMD) rises from 70 ½ to 72. Taxpayers turning 70 ½ in 2020 will not have to begin distributing funds from their Traditional IRAs until their 72nd birthday. Unfortunately, if you turned 70 ½ in 2019 or prior, this change does not affect you and you must still take your Required Minimum Distribution (RMD).
2. 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. This brings Traditional IRA rules into parity with Roth IRA rules regarding age. Under the old law, you were unable to contribute to a Traditional IRA past age 70 ½.
3. 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.
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.