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SECURE Act 2020

Setting Every Community Up for Retirement Enhancement Act

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019.

Many of the SECURE Act’s provisions took effect on January 1, 2020. Most of them offer real benefits to IRA owners.

At Star One Credit Union, we strive to provide the best service possible by helping you understand the benefits. Below is some information on the SECURE Act provisions that will make the most significant impact on your retirement plan. Please contact your Tax or Financial Advisor for questions on how these sweeping provisions may affect you.

Traditional IRA owners can now contribute after age 70½

If you work, or have a working spouse, you will be able to contribute to a Traditional IRA even after you reach the age of 70½. This provision may help you accumulate additional retirement assets even if you are taking Required Minimum Distributions (RMDs) at the same time that you contribute to your IRAs.

Delayed age for Required Minimum Distributions (RMDs)

Prior to the SECURE Act, the RMD age began at 70 ½. If you turn age 70½ in 2020 or later, you can now wait until age 72 to begin taking RMDs. If you already turned 70½ by the end of 2019, RMDs cannot be delayed under the new rule. In other words, all Traditional IRA owners born on or before June 30, 1949, are subject to the old rule, which makes the 70½ year the first Required Minimum Distribution year.

The required beginning date to satisfy your first RMD is now April 1, of the year after you become age 72. However, delaying until April 1 to make your distribution could affect your income-tax liability. All subsequent RMDs must be taken by December 31. We recommend you consult your tax advisor with any tax concerns.

Distribution taken for birth or adoption

Effective for distributions in 2020 and later years. The birth of a child or adoption of a child (or individual who is incapable of self-support) is now exempt from the 10% early-distribution penalty tax (if applicable) for distributions of up to $5,000 in aggregate from IRAs. New 10-year payout option for non-spouse beneficiary

IRA beneficiaries were able to take death distributions over their life expectancies. Now this provision has been changed to require faster distributions, generally over a 10-year time frame. Non-spouse beneficiaries of account owners who die on or after January 1, 2020, are subject to this new rule, unless they are:

  • disabled individuals,
  • certain chronically ill individuals,
  • beneficiaries who are not more than 10 years younger than the age of the decedent,
  • minor children of the decedent (they must begin a 10-year payout period upon reaching the age of majority), or
  • recipients of certain annuitized payments begun before enactment of the SECURE Act.

Expanded definition of the eligible compensation for Graduate student IRA contributions

Effective for 2020 and later taxable years, certain stipend, fellowship, and similar payments to graduate and postdoctoral students will be treated as earned income for IRA contribution purposes.