Posted on Jan. 1 2020.
Dear Clients and Friends,
Welcome to 2020!
It is a new year and a new decade. It is also a new tax law that will impact everyone that has a retirement account. The statute was effective January 1, 2020.
The new law is called “SECURE.” The full name is “Setting Every Community Up for Retirement Enhancement”. Like most names of statutes, the name, in my humble opinion, has little to do with the actual provisions of the statute.
This new statute primarily focuses on how small companies create and administer 401ks and how individuals take required minimum distributions and pass on their retirement account at death.
For purposes of this newsletter, I want to highlight the provisions impacting individuals.
Under the old law, an individual had to start taking their required minimum distribution in the year they turned 70 ½. Under the new law, you may delay taking your required minimum distribution until the year you turn age 72.
Under the old law, you could not continue to make a traditional IRA contribution after age 70 ½. Under the new law, you may continue to make contributions to a traditional IRA after age 70 ½. However, you can only make them from earned income. You cannot make them from interest income, dividend income, other passive income, or from a required minimum distribution. Earned oncome is from wages, salaries or your own business.
These two changes will not compact most retirees. However, the next change will impact nearly everyone with a retirement account.
Under both the old law and the new law, a spouse inheriting an IRA is entitled to a “Spousal Rollover” and may take distributions over their lifetime. Under the old law, an IRA inherited by a non-spouse could be distributed and taxed over the lifetime of the person inheriting the IRA. Since distributions are taxed when received, this meant that the taxes were on smaller amounts and at a lower tax bracket. Under the new law, the inherited IRA must be distributed within 10 hears of the year of death.
Here is an example: In the past, if you left your IRA to your 50 year old child, he/she could take distributions over 30 years or more. That reduced the tax on the distribution each year while allowing the IRA to grow tax deferred each year. Under the new law, he/she must withdraw all the funds within 10 years of the year of death. That means larger installments, pushing you into a higher tax bracket, at a higher tax rate, paid more quickly to the government. If you think this is designed to collect more taxes, more quickly, I think you are correct.
I will be holding a special seminar on the Secure Act on January 31, 2020 at 10:30am. It will be in the Northville Community Center located at 303 W. Main Street, Northville, MI 48167. The seminar will discuss provisions of the act, as well as strategies to minimize the additional taxes this law will create. Please call the Northville Community Center at (248) 305-2851 to reserve a seat for this seminar.
If you cannot make it to the January 31 seminar, I will be answering questions about the Secure Act at all my other seminars this year. Go to my website: www.gfalawfirm.com. There are nearly 50 seminars scheduled for Novi, Plymouth, Northville, Westland and Dearborn Heights. There is a special phone number to register for each location. Please call the specific phone number that correlates to each location for each seminar. Each facility needs to know how many people a coming so they can set up the room appropriately.
Remember to mark your calendars:
January 31, 2020 at 10:30am
Northville Community Center
303 W. Main Street, Northville, MI 48167
Call (248) 305-2851 to reserve a seat
I look forward to seeing you at a seminar this year. Feel free to bring a friend or two with you.
Very truly yours,