The law has recently changed regarding tax-advantaged retirement accounts, these changes were included in the SECURE Act, effective January 1, 2020, and the CARES Act, effective March 27, 2020. While the CARES Act has a short-term focus, both are important to understand when managing and planning your finances.
- The age for required minimum distributions from tax-advantaged retirement accounts has increased from 70.5 to 72.
- Individuals may now contribute indefinitely to an IRA so long as the contribution is derived from earned income.
- Absent certain exceptions, including an inheritance by a spouse, an inherited IRA must be fully depleted within 10 years of inheritance. Prior to this change, an individual inheriting an IRA could use the account throughout their lifetime.
- 401(k) plans may now offer annuities. Check with your plan sponsor to determine whether these new investment opportunities are available.
- Required minimum distributions for 2020 have been waived for tax-advantaged retirement accounts such as 401(k), 403(b), 457(b), and IRA accounts.
- Individuals may take a Coronavirus related distribution which allows withdrawing up to $100,000.00 from eligible retirement accounts without the 10% penalty for early withdrawal. These withdrawals must be completed before December 31, 2020. Withdrawals will be included in taxable income, but the income distribution may be calculated over a three-year period. Individuals must certify (1) the individual, their spouse, or dependent has been diagnosed with COVID-19 or (2) the individual is experiencing financial difficulty resulting from the pandemic.
- The maximum loan amount from a tax qualified retirement account has increased to the lesser of $100,000.00 or 100% of the participants vested balance. Loans from qualified retirement accounts must be taken by September 23, 2020 to utilize this temporary increase.
- Repayment of retirement account loans have been delayed for 1 year.
Changes to tax-advantaged retirement accounts may change your estate planning goals. If you have questions regarding how recent changes in the law may affect your estate planning objectives, call us today.