A New Era For Your IRA!

A New Era For Your IRA!

There’s the joke about the insurance advisor who said to her client:  “I have some bad news and some good news!  The bad news is your premiums will be higher than we thought!”  Client:  “Gee, what’s the good news?”  Advisor:  “It’s because you’re highly rated, so you won’t have to pay them for nearly as long!”

A little research reveals that the good news-bad news opening in conversations has been around for over a hundred years, and that it became popular as a standard predicate for jokes during the 1960s.  So it’s a good to see that it has worked its way around into the life insurance marketplace!

Part of the government spending bill passed in December is legislation know as the SECURE Act, which stands for Setting Every Community Up for Retirement Enhancement.

SECURE contains provisions that affect qualified retirement plans in general; but consider the good news and the bad news regarding the changes the new law makes concerning IRAs.

The Good News:

72 is the new 70-1/2!  Under prior law required minimum distributions (RMDs) had to begin by April 1 of the year after a taxpayer reached age 70-1/2 or severe penalties applied.  Now, anyone who reached age 70-1/2 after December 31, 2019, does not have to take RMDs until April 1 in the year after they reach age 72.

Twilight contributions!  Previously taxpayers could not make contributions for the year they turned 70-1/2 and beyond.  SECURE allows them to make contributions any year if they have earned income at least in the amount of the contribution.

Children are Cheaper!  Several exceptions exist that allow for un-penalized withdrawals prior to age 59-1/2.  Another has been added permitting parents to withdraw up to $5,000 to cover costs of qualified birth and adoption expenses up to one year after the event.

The Bad News:

Taking the life out of “stretch”!  A common planning strategy under prior law was to properly designate beneficiaries on an IRA anticipating that they could stretch receipt of the benefits over their life expectancy.  SECURE mandates that most designated beneficiaries must now make full distribution by the end of the 10th calendar year following the taxpayer’s death.  Exceptions to the limitation are available to surviving spouses, disabled or chronically ill persons, minor children of the taxpayer, or those less than 10 years younger than the taxpayer.

SECURE also contains advantageous provisions that benefit other aspects of existing retirement plans with incentives for small businesses that start new plans for employees.

And then there’s the advisor who told his client: “I have some bad news concerning the tests results from your underwriting exam!”  Client: “Did I pass?”  Advisor:  “No, but you will in about six months.”