By Joel Dresang

Congress has approved legislation affecting older workers, retirees in their 70s and inheritors of certain retirement accounts.

As Dave Sandstrom explained at the 2019 Investment Outlook Seminar, the provisions are part of sweeping changes in what has been called the Secure Act (Setting Every Community Up for Retirement Enhancement Act of 2019).

With bipartisan support, the legislation handily passed the House of Representatives in May before stalling in the Senate. Lawmakers included it in a $1.4 trillion spending deal approved Dec. 19 to avert a government shutdown. President Trump signed it into law.

Among the highlights:

• Workers age 70½ and older will be able to make tax-deductible contributions to IRAs. Currently, contributions aren’t allowed after 70½.
• Investors born after June 30, 1938 (thus turning 70½ Jan. 1, 2020 or later) will be able to wait until they turn 72 to begin taking required minimum distributions from their IRAs. Currently, RMDs start at 70½.
• Beneficiaries of IRAs must spend them down within 10 years, as opposed to the current practice of extending distributions—and therefore tax payments—over the beneficiary’s lifetime. Spouses and minor children are exempt.

As Dave explained, the first two provisions address demographic trends by extending tax benefits of IRAs.

“I think as Americans live longer, we’re also working longer, and I think that part of the law change is a good idea,” Dave said in a Money Talk Video.

Expanding those and other allowances in the legislation would reduce federal revenue by $16 billion over 10 years, according to the Joint Committee on Taxation. To help offset that, lawmakers took away the so-called Stretch IRA.

“This is going to have a pretty substantial impact on young beneficiaries of large IRAs,” Dave said.

“Consider for a moment a 40-year-old beneficiary who’s getting a $1 million IRA. Under current law, they could stretch those distributions out 40 or 50 years over their lifetime. Now imagine that they have to take out $100,000 a year for the next 10 years. During their prime earning years, this could have a substantially negative impact on their tax rates.”

Further details of these and other provisions—including penalty-free IRA withdrawals for child birth or adoption and tax-free withdrawals from 529 education savings accounts to repay student loans—will become clearer in time.

Dave reminds investors that tax consequences are one of many considerations in financial decisions.

Joel Dresang is vice president-communications at Landaas & Company.

Learn more
The SECURE Act and the Retirement Enhancement and Savings Act Tax Proposals, from the Congressional Research Service
Tax Updates for investors, a Money Talk Video with Dave Sandstrom
Retirement requirements: Distributions, a Money Talk Video with Dave Sandstrom
Retirement spending with heirs in mind, a Money Talk Video with Dave Sandstrom
When should I …take my required minimum distribution?
When should I …check my beneficiaries?

(initially posted Dec. 31, 2019; updated Jan. 8, 2020)

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