The New Year Brings Some New IRA Tax Code Rules

Just before the end of 2019, the Setting Every Community Up for Retirement Enhancement Act, better known as the “SECURE Act”, went into effect as a new law.

It brings another round of interesting changes to the U.S. tax code, but especially around the rules regarding Required Minimum Distributions (RMDs), which dictate when and how much people must withdraw from their retirement accounts to avoid tax penalties.  Beginning Jan. 1, 2020, the new law pushes the age at which you need to start withdrawing money from your traditional IRA retirement accounts from age 70 ½ to 72.  If you turn 70 ½ in 2019, you will still need to take your RMD for 2019, no later than April 1 of 2020.  If you are currently receiving RMDs (or should be) because you are already over age 70 ½, you must continue to take RMDs.  Only those who turn 70 ½ in 2020 (or later) may wait until age 72 to being taking their Required Minimum Distributions.

Beginning with the 2020 tax year, the law will allow you to contribute to your traditional IRA in the year you turn 70 ½ and beyond, provided you have earned income.  You still may not make 2019 (prior year) traditional IRA contributions if you are over 70 ½.

Upon the death of the account owner, distributions to individual beneficiaries must now be made within 10 years.  There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the account owner.  Minor children who are beneficiaries of IRA accounts also have a special exception to the 10 year rule, but only until they reach the age of majority.

The new law also allows penalty-free withdrawals from retirement plans for birth or adoption expenses up to certain limits.