SECURE Act introduces retirement savings changes for 2020

On December 20, 2019, the president signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law, and it becomes effective January 1, 2020. 

The SECURE Act has several provisions that will impact how you can save for retirement and what you can do with your retirement funds.

Among these provisions are some that could have a positive affect how people with charitable intent plan gifts from their retirement accounts. The SECURE Act:

  • Increases the RMD age
    Prior to the new legislation, owners of traditional IRAs and 401(k) plans would have to withdraw required minimum distributions (RMDs) from their accounts beginning the year they turn 70 ½. The SECURE Act raises the RMD age to 72, allowing for an additional 1 ½ years to defer withdrawals.
  • Eliminates the age limit on contributing
    Before the SECURE Act, people age 70 ½ and older were prohibited from contributing to traditional IRAs. The new legislation removes that age limit and does not set a maximum age restriction, allowing for contributions throughout a person’s lifetime. Roth IRAs did not previously have a maximum age limit and also will not have one under the SECURE Act.

Please note: The SECURE Act does not change the age at which you can make a qualified charitable distribution from your IRA, which remains at age 70 ½. It now creates a unique 1- or 2-year window in which IRA distributions may qualify as charitable contributions, but not as RMDs (that haven’t yet begun).

For people who plan to use their retirement savings to make charitable gifts, these provisions offer opportunities to continue growing their retirement accounts throughout their lifetimes, potentially increasing the power of IRA rollover giving.

The SECURE Act also eliminates "stretch IRAs." Prior to the new legislation, the stretch provision allowed the beneficiary to determine RMDs based on his or her life expectancy, potentially “stretching” payments over an extended period of time.

Under the SECURE Act, the stretch period is limited to 10 years. Exceptions to this rule are beneficiaries who are:

  • The surviving spouse of a plan participant
  • Minors (the 10-year rule becomes active once a minor reaches the age of majority)
  • Chronically ill
  • Not more than 10 years younger than the plan owner

While the elimination of the stretch option does create new limits on how plan beneficiaries can use retirement funds, there is still a way to make the funds go further.

A charitable remainder trust (CRT) is a planning technique often used by people with large retirement accounts and charitable intent, and it becomes a more powerful tool in under the SECURE Act.

With this option, retirement plan or other assets are directed to a CRT after the death of the plan owner. These assets are then divided into an income stream for a specified amount of time and an interest pool that passes at the end of the term. While the income stream typically goes to non-charitable beneficiaries, such as family members, the remainder can pass to qualified charities.

Our estate planning partners at Thompson & Associates offer more details on the other provisions of the SECURE Act. Click here to read them

If you have additional questions about the SECURE Act and what it means for your charitable giving, please contact Amy Manternach, vice president of philanthropy, at amy@dbqfoundation.org or 563.588.2700.

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Jeff Danna
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