“Setting Every Community Up for Retirement Enhancement Act”
The SECURE Act was signed into law on December 20, 2019. Here is a summary of some of the major changes included in this new law that may affect Parkside Advisors clients. We plan to incorporate these changes into our financial and tax planning discussions with clients based on their individual situations. Should you have any more immediate questions or concerns, please don’t hesitate to contact the firm to schedule a call or meeting.
- Required Minimum Distributions (RMDs) from retirement accounts will start at age 72 now, rather than age 70½
If you will turn 70½ in 2020 or later, this change applies to you.
If you turned 70½ in 2019, you still need to take your RMD for 2019 no later than April 1, 2020. If you are already taking RMDs because you are over 70½, you must continue to do so.
- Contributions to Traditional IRAs after age 70½ will now be allowed
Starting in 2020, anyone with earned income can contribute to their traditional IRA with no age restrictions. Note that this is not allowed for the 2019 tax year if you are over 70½.
- Inherited IRA account distribution changes
Upon the death of the IRA account owner in 2020 and beyond, a beneficiary of the account must fully distribute it within 10 years. The current rules, which allow distributions to happen over the lifetime of the beneficiary, will no longer apply thereby forcing larger distributions into a shorter time period. There are certain exceptions for spouses, disabled persons and minor children.
- Medical expense deduction %-threshold
The medical expense deduction threshold will shift down to 7.5% of adjusted gross income in 2019 and 2020.
- Kiddie-tax changes
The Tax Cuts and Jobs Act that became law two years ago required that children’s income be taxed at trust tax rates rather than their parent’s marginal tax rate. The SECURE act reverses this and applies the parent’s marginal rate again. This is potentially meaningful where children have significant unearned income and the trust rates resulted in higher taxes.
- 401k availability to part-time employees
Employees who have worked at least 500 hours per year for three consecutive years must now be eligible for an employer’s 401k plan. Employees who have worked less than 1,000 hours in a single year may still be excluded from a plan, but this new rule is meant to ensure long-term part-time employees are not excluded.