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By Washington Trust / January 14, 2020

The SECURE Act made many sweeping and significant changes for retirement plans, including IRAs. With regard to IRAs, the major changes impact the IRA rules after age 70 and after death.

How does the SECURE Act impact my IRA during my lifetime?
The SECURE Act changed the rules regarding contributions and distributions during an owner’s lifetime.

How did the SECURE Act change the rules for contributions during my lifetime?
The SECURE Act eliminated the maximum age limitation for contributing to traditional IRAs. Before the SECURE Act, contributions were prohibited after age 70.5.

Does this benefit apply to all IRA owners?
Yes – it applies to all traditional IRA contributions on and after 12/31/2019.

Is there a catch?
There is an additional consideration if you plan to use qualified charitable distributions (QCDs). Qualified charitable distributions are certain IRA distributions that are paid directly to charitable organizations. If you meet the QCD requirements, up to $100,000 of your QCD can be excluded from your taxable income. However, that $100,000 maximum exclusion is reduced by any deductions you take for traditional IRA contributions made after age 70.5.

How did the SECURE Act change the rules for lifetime distributions?
In addition to the impact on QCDs, described above, the SECURE Act changed the so-called “required beginning date” from age 70.5 to 72.

What does that mean for me?
Generally, it means that IRA owners do not have to begin taking RMDs until age 72.

Does this benefit apply to all IRA owners?
No. The effective date of this provision is for traditional IRA owners that attain age 70.5 after 12/31/2019.

So what does that mean?
Traditional IRA owners that were born prior to July 1, 1949 remain governed by the old rules. They have to take their RMDs, and they cannot make contributions to their IRAs, even if they are under age 72.

How does the SECURE Act impact my IRA after my death?
The SECURE Act eliminates the so-called “stretch IRA” for most non-spouse beneficiaries. Instead, it requires that the full balance of the IRA be distributed within 10 years after your death, rather than over the lifetime of your beneficiary.

Does this new rule apply in all cases?
No – there are some exceptions to the 10-year rule, and there is an effective date rule that “grandfathers” in certain IRAs.

What are the general exceptions?
In general, the 10-year rule does not apply to:

  • your surviving spouse
  • your minor child (until he/she reaches majority)
  • certain disabled and chronically ill beneficiaries
  • a beneficiary who is not more than 10 years younger than the IRA owner

What are the “grandfather” rules?
Generally, the rules only apply to inherited IRAs where the owner dies after 12/31/2019. Therefore, inherited IRAs where the owner died before 12/31/2019 are governed by the old life expectancy rules.

Please note, however, that “grandfathering” only applies to the IRA owner’s designated beneficiary. When the original inheritance beneficiary dies, any beneficiary that she/he names for the inherited IRA will be governed by the SECURE Act 10-year payout rules, unless an exception applies.

This overview provides general information based on currently available data, since the IRS has not issued any final regulations or guidance to date. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This FAQ does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial advisor, attorney or tax professional regarding your specific investment, legal or tax situation as this is not intended as legal or tax advice.

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The opinions expressed in this blog are those of the author and may not reflect those of Washington Trust Wealth Management. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any opinions expressed herein are subject to change at any time without notice. Any person relying upon this information shall be solely responsible for the consequences of such reliance. Performance is historical and does not guarantee future results.

Such information does not constitute legal or professional advice as all situations are unique and are based on individual facts and circumstances.

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