At the end of 2019 Congress passed into law the Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act. With over 1.3 million COVID-19 cases in the United States and more than 79,000 deaths recorded, it might be time for you to rethink your Individual Retirement Account (IRA) or 401k distribution upon death.
SECURE Act
Under the SECURE Act starting in 2020, a non spouse heir who inherits retirement account distributions can no longer stretch out the receipt of those funds over his or her lifetime. A non spouse heir must now receive those distributions over ten years.
This means that your children can no longer spread the required minimum distributions from all the money you saved for years, over their lifetime. Therefore, they may be placed into a higher tax bracket having to withdraw this money over ten years and not a lifetime. This is also true if you have an estate plan and leave your retirement in a trust.
Here are some additional ways the SECURE Act may impact you:
- As an employee you can now contribute to a traditional IRA after age 70. That said, you may want to consider contributing to a Roth IRA instead of a traditional IRA.
- If you adopt or give birth to a child you can withdraw up to $5,000.00 from your IRA or 401K without tax penalty.
- Beginning in 2021 as a part-time employee you will be eligible to contribute to a 401K plan. Prior to the passage of this Act, people who worked less than 1,000 hours durning a year were not allowed to participate in such plans.
- Consider converting your traditional IRA in stages to a Roth IRA. While your heirs will still have to withdraw the money in ten years, they would not be taxed on the money and they could allow it to grow with nine years of tax free growth.
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC
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