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Things You Need to Know about the SECURE Act

Wednesday, January 22, 2020

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St. Paul's Charitable Giving Department has been learning all about the new SECURE Act, which was signed into law on December 20, 2019, so we can share with you how these changes impact your retirement fund. Here is what you need to know:

1.No more "Stretch" IRAs for Non-Spouse Beneficiaries - Before the SECURE Act, if you named a non-spouse as the beneficiary of your IRA, they could stretch out distributions from the account over their lifetime. Now if you name a non-spouse who is more than 10 years younger than you (such as a child or grandchild) as the beneficiary of your IRA, they will have to withdraw all the funds from the account within 10 years of inheriting. There are no required minimum distributions each year, but they must empty the account within 10 years. The only exception to this would be in the case of a minor child or someone who is chronically ill or disabled.

If you inherited a "Stretch" IRA prior to the end of 2019, the new rule does not apply, and the fund can continue to be stretched over your lifetime.

2. Age went up for when you must start taking your Required Minimum Distribution - Before the SECURE Act, owners of traditional IRAs or 401(k) plans had to begin taking out a required minimum distribution (RMD) from their account in the year they turned 70 1/2. Now that age has gone up to 72.

Please note: if you turned 70 1/2 before the end of 2019, you will fall under the old rule and will have to take your first RMD in 2020.

3. No age limit for contributions - Recognizing that more people continue to work into their seventies, the SECURE Act removed the age limit for contributing to your traditional IRA.

What about qualified charitable distributions?

Under the SECURE Act, you can still start making qualified charitable distributions directly from your IRA to your charity of choice when you reach the age of 70 1/2 to help reduce your taxable income. This is limited to up to $100,000 annually.

However if you are still making contributions to your IRA after the age of 70 1/2, that will reduce the amount of the qualified charitable distribution dollar-for-dollar that you are allowed to claim on your taxes as a charitable deduction.

For example: Alice contributed $10,000 to her IRA at the age of 72. She also made a $20,000 qualified charitable distribution to St. Paul's. Alice can only claim the $10,000 as a charitable deduction on her taxes.

These changes in the SECURE Act may impact how you withdraw your retirement funds and utilize tax-saving strategies through charitable giving. It may also impact your plans for the distribution of your assets after your passing. You are encouraged to consult with your tax advisor and/or financial planner to understand how your retirement funds are impacted by the SECURE Act and how they can be used for charitable giving given your specific situation.