WASHINGTON—What are the new Individual Retirement Account requirements resulting from the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act?
It’s a question being posed by many credit unions, according to CUNA, which shared some answers to that question as provided by Dennis Zuehlke, ERISA compliance manager with Ascensus.
Q1: What are the new distribution requirements for nonspouse IRA beneficiaries?
A: For IRA owner deaths in 2020 or later, most nonspouse beneficiaries of IRAs will generally be required to distribute inherited amounts within 10 years. Exceptions include those who, at the time of the IRA owner’s death, are:
- Disabled
- Chronically ill
- Within 10 years of the decedent’s age
- Minors (they will begin a 10-year payment period when they reach the age of majority)
- Recipients of certain annuitized payments begun before the enactment of the SECURE Act
Q2: What is the new age for required minimum distributions (RMDs)?
A: The age when RMDs from traditional IRAs must generally begin is increased from age 70½ to age 72. This change is effective for distributions required in 2020 and later years, for those who reach age 70½ in 2020 or a later year.
Q3: Is the birth or adoption of a child considered a “distribution event?”
A: Yes. The birth of a child or adoption of a child (or individual who is incapable of self-support) qualifies both as a plan distribution event and as an amount that is exempt from the 10% early distribution penalty tax (if applicable) for distributions of up to $5,000 in aggregate from IRAs.
These amounts may be repaid. This change is effective for distributions in 2020 and later, explained Zuehlke.
Q4: Has there been a change to the allowable age for contributions?
A: Yes. Taxpayers with earned income can make Traditional IRA contributions at any age, not just for the years before reaching 70½, which was the previous requirement. This change is effective for 2020.
“Keep in mind that while this change is effective for 2020, it does not apply to prior-year contributions made for tax year 2019,” said Zuehlke.
Q5: Has there been a change to student contributions?
A: Yes. Certain stipend, fellowship, and similar payments to graduate and postdoctoral students will be treated as earned income for IRA contribution purposes. This is also effective for 2020 and later taxable years.