Important Changes to Your IRA

The SECURE Act & CARES Act

Policy Affects Retirement

Karen B. Arthur |
Posted on Aug 14, 2020

The Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, became law on December 20, 2019.  If you haven’t already heard, there is a significant change affecting retirement account owners in that the SECURE Act increases the age at which retirement plan participants need to take the annual required minimum distribution.  What was previously the age of 70½ is now the age of 72.  This applies to individuals who reach the age of 70½ after December 31, 2019.  Account owners subject to required minimum distributions must begin taking these distributions regardless of whether or not they need the income.  Not taking the full required minimum distribution for any given year subjects the account owner to a 50% penalty on the amount that should have been taken.

The SECURE Act also allows Traditional Individual Retirement Account (IRA) owners to keep making contributions indefinitely provided they have earned income through an employer or are self-employed.  Prior to the provisions in the SECURE Act, contributions to a Traditional IRA were prohibited upon attaining the age of 70½.

In addition, the SECURE Act eliminated the estate planning tool whereby an inherited Traditional IRA could be drawn down over a beneficiary’s lifetime to minimize taxes.  Now, with a few exceptions, most beneficiaries will be required to deplete the account within 10 years.  These exceptions include the surviving spouse, minor children (but not grandchildren), disabled beneficiaries, chronically ill individuals, and beneficiaries who are up to 10 years younger than the deceased account owner.

For your awareness as well, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waived RMDs for the 2020 calendar year effective March 27, 2020.  This means that IRA account owners and IRA beneficiaries are not required to take a distribution from any Traditional IRA this year.  The waiver also applies to account owners who turned 70½ in 2019, but waited to take their first distribution in 2020.  In other words, if you turned age 70½ in 2019 and delayed your RMD until this year, you have the option of a distribution in 2020 but must begin taking RMDs in 2021.

It is also important to note that IRA account owners of the age of 70½ or older may choose to make a tax-free charitable contribution.  Anyone meeting the eligible age requirement may transfer funds directly from an IRA to an eligible charity without paying income tax on the transaction, subject to certain limitations.  

Retirement planning can be an overwhelming process, especially given the complex and changing laws regarding retirement accounts.  We at ACNB Bank, like other financial advisors, can help you so you are not alone in this important process of pursuing your retirement goals and dreams.

Karen B. Arthur
First Vice President/Trust Services Manager for ACNB Bank