Retirement Savings Strategies Get A Tune Up
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affected by the SECURE Act . As long as you are 70½ , you can continue to make charitable contributions directly from your IRA without having to report the distribution on your tax return as income .
If you can afford to wait until age 72 to take advantage of the delayed RMD , set up some time to speak with an investment advisor to talk about how to leverage the additional time you now have . For example , strategically timed Roth conversions can be an effective tool to accelerate your income in a tax-efficient manner .
Required Distribution Rules For Designated Beneficiaries
Effective date : Applies to distributions with respect to IRA owners who die after Dec . 31 , 2019 .
Before the SECURE Act , the non-spouse beneficiary of your IRA could stretch out distributions from the account over their life expectancy . The undistributed portion of the IRA would continue to grow income tax-free , resulting in substantial income tax savings and untaxed appreciation for your beneficiary .
The SECURE Act modifies the RMD rules with respect to retirement plan and IRA balances upon your death . Distributions made to individuals – other than to your surviving spouse ; disabled or chronically ill individuals ; individuals who are not more than 10 years younger than you ; or your child who has not reached the age of maturity – are generally required to be distributed by the end of the 10 th calendar year following the year of your death .
This is the biggest revenue raiser contained in the SECURE Act because of how it accelerates required distributions from tax deferred accounts .
For example , if you were to die with an IRA balance of $ 2 million in 2020 and designate the beneficiary of the account as your adult daughter , she does not have to receive any RMDs after your death and could defer receiving the full IRA balance until 2031 . Alternatively , she could receive the IRA balance gradually over the 10- year period to mitigate a larger income tax obligation in 2031 as a result of a higher marginal tax bracket . She is , however , no longer able to stretch the payments over her expected lifetime .
Repealed : Maximum Age for Traditional IRA Contributions
Effective date : Contributions made for tax years after Dec . 31 , 2019
If you still have earned income after the age of 70½ , you are now able to continue making tax deductible contributions to your IRA up to the amount of your earned income ( not to exceed the contribution limit , including catch up contributions , in effect for that year ). This repeals the ban that existed on contributions to a traditional IRA after you have attained age 70½ . This provision of the SECURE Act is the direct result of individuals living longer and facing the higher probability that they will outlive their retirement assets .
Disclaimer : This article is not meant to be thorough analysis of the new SECURE Act . Rather , it is meant to identify changes in the law that may apply to you . Follow up with your trusted advisor at Rea regarding any provisions below that concern you .
By Paul McEwan , CPA , MTax , AIFA principal & director of retirement plan services ( New Philadelphia office ) paul . mcewan @ reacpa . com
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