January 2, 2020

 

We begin the new year with wishes of health, happiness, and of gratitude for the opportunity to work with you.  2019 ends with market returns over 25%, and record levels reached on all the major indexes.  However, new changes are coming in 2020, some of which may have a direct impact on you with the passing and signing of the SECURE Act late in the year.  Here are some of the most significant changes and how they may impact you.  We look forward to discussing these with you in greater detail in 2020!

REQUIRED MINIMUM DISTRIBUTION AGE CHANGES TO 72

This is a big one.  Starting in 2020, the age at which you must begin taking distributions from IRAs changes from 70 ½ to 72.  Whereas “RMDs” as they’re often called, previously started in the year you turned 70 ½, they are now required in the year in which you turn 72.  This does not apply to those who have already reached age 70 ½ or are currently taking required minimum distributions.  The new rule applies only to those who have not have not turned 70 ½ as of December 31, 2019.   This is a timely change as the previous law was based on life expectancy tables from the 1960s, which have changed substantially as people are now living much longer.

NO MORE STRETCH IRA

Currently, inheriting an IRA allowed one to stretch the required distribution over their own lifetime – this is known as a “Stretch IRA.”  This allowed many people to make inherited IRAs part of their own portfolios and retirement planning strategies.  Starting in 2020, “Stretch IRAs” will no longer be an option.  Inherited IRAs must be withdrawn, and taxes paid, within 10 years.  It’s important to note, however, that during the 10-year window, distributions are not required each year, or at all.  Just that the account be drawn to zero at the end of the 10th year.

Note:  This rule does not apply to spouses that inherit an IRA from a deceased spouse, as long as the surviving spouse within 10 years of age of the deceased.  In the case of a spousal inheritance, the IRA can still be claimed by the surviving spouse with required distributions stretched over their own lifetime.  Minor children are also exempt from the new rule, until they reach majority age (18 in New York and most states), at which their 10-year window begins.  Disabled beneficiaries who are not more than 10 years younger than the account holder are also exempt from the new law.

REMOVAL OF THE IRA CONTRIBUTION CAP AT AGE 70.5

IRA owners will now be able to make IRA contributions after reaching age 70 ½.  Previously account owners could not contribute to IRAs after reaching this age, even as nearly 20% of 70 to 74-year olds are working today, according to the Bureau of Labor and Statistics.  The new law allows for IRA contributions to continue past age 70.5.  It’s important to note that contributions can also be made for spouses, even if one is nonworking.  For 2020, the IRA contribution limit is $6,000, plus an additional $1,000 for those over age 50.

Keep in mind there are several other new rules that may be worth discussing further, including changes to charitable giving, annuities within 401(k)s, and an allowance for new parents to use IRA assets penalty free.  We are happy to discuss these further at anytime if you would like.

RETIREMENT PLAN CONTRIBUTION LIMITS FOR 2020

Account type

2020 Contribution

Over 50 Catch-Up

Total Contribution (over 50)

Traditional/Roth IRA

$6,000

$1,000

$7,000

401(k), 403(b), 457

$19,500

$6,500

$26,000

SIMPLE IRA

$13,500

$3,000

$16,500

SEP IRA

$57,000*

 

 

                                                                *or 25% of compensation, whichever is lower

POINTS OF INTEREST

-          Stock Market Holidays:  Markets will be closed in observance of the following holidays in the coming months.

o   Wednesday, January 1 – New Year’s Day

o   Monday, January 20 – Martin Luther King Jr. Day

o   Monday, February 17 – Presidents’ Day

-          One of our priorities this year is to confirm beneficiaries are in proper order for our clients.  Please review your statements to confirm your beneficiaries, and if a change is needed, please let us know!

-          As a reminder, if you would like to make a request to have funds sent to you from an investment account, please call to make this request.  For security purposes we cannot issue funds via e-mail, only by speaking in person or over the phone.