The SECURE Act --Tips to Help You Decipher the Fine Print

On December 20, 2019, the President signed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) into law.  The passage has received a lot of attention, and these are the important items that may have a direct impact on you.

As always with new tax law, the IRS will issue further guidance (fine print) in the form of regulations, including those below:

Retirement Planning

  1. Starting in 2020, anyone of any age may now deposit money to an IRA if they have earned income, such as wages or self-employment. Some other rules may apply, but the old rule prohibiting deposits during or after the year turning 70 and ½ has been repealed. 

    Fine Print: Qualified Charitable Distributions (QCD’s) are still allowed at age 70 ½ However, IRA contributions after age 70 ½ will reduce QCDs tax-free amounts (by formula).
     
  2. Beginning in 2020, the mandatory age to start distributions from your IRA has been raised to 72 from age 70 ½. 

    Fine Print: If you were 70 ½ before 12/31/19, you must continue to take RMDs. Like the age 70 ½ rule, you have until April of the year after you turn 72 to make your 1st withdrawal.If you wait until the year after you turn 72, you must take two RMDs in that year.
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  3. IRAs inherited from people (other than your spouse and a few other exceptions) who passed away after 2019 must now be distributed within 10 years of death. 

    Fine Print: This does not affect situations where the IRA was inherited from someone who died before 2020. The exceptions are disabled, chronically ill, individuals who are not more than 10-years younger than the decedent.Minor children of the original retirement account owner are an exception, but only until they reach the age of majority.
     
  4. Stipends and fellowships now qualify the recipient to make IRA contributions.

    Fine Print: Starting in 2020 – you cannot contribute in 2020 for tax year 2019.
  1. Up to $5,000 may be withdrawn from a retirement plan without penalty for the birth or legal adoption of a child, for up to one year after birth or adoption. The amount withdrawn is still taxable, unless it is redeposited within 60 days.  The withdrawal may also be redeposited without penalty.

    Fine Print: One-year means beginning from either the birth of the child or the date the adoption of an individual under the age of 18 is finalized.

College and Children Changes

  1. You may now withdraw up to $10,000 in total during your lifetime from a 529 plan to repay student loans of the account beneficiary and their siblings, without tax or penalty, as a qualified educational expense.

    Fine Print: The new law is effective after 12/31/18.  The portion of student loan interest that is paid for with tax-free 529 plan earnings is not eligible for the student loan interest deduction.  The $10,000 is an aggerate limit in qualified student loan repayments per 529 plan beneficiary and an aggregate $10,000 per each of the beneficiary’s siblings.  Siblings include a brother, sister, stepbrother, or stepsister.  The 529 account owner may change the 529 plan beneficiary at any time without tax consequences.
     
  2. A 529 may now be used tax-free to pay for an apprenticeship program if it is approved as such.

    Fine Print: The original bill included homeschooling, but the final bill did not.
     
  3. Those rare children with large amounts of interest, dividends or capital gain income are once again retroactively taxed at their parent’s tax rates instead of the potentially higher trust tax rates. 

    Fine Print:Effective beginning 12/31/17.
     
  4. The tuition and fees deductions have been retroactively restored from 2018-2020.

Other Items

  1. Several Other Changes:
  • The deduction for mortgage insurance premiums has been retroactively restored.
  • The deduction for medical expenses has been restored to a lower threshold.
  • The credit for installing an electric car charger has been restored.
  • A new rule prohibiting the purchase of smoking or e-cigarette products (including vaping) by anyone under age 21 goes into effect within 90 days of FDA regulations.

As with all new tax laws, we will monitor the regulations that emerge, and your advisor will keep you informed of the implications for your planning. 

About FAI Wealth Management, Inc.: Located in Columbia, Maryland, FAI focuses on helping clients create the financial future they desire by protecting their wealth, making the most of their assets, and planning for life's uncertainties. The firm combines fee-only, fiduciary-driven guidance with highly personalized, consultative financial planning and investment services that enable individuals, families, and businesses to navigate complex life transitions. Founded in 1987, FAI currently manages more than $350 million in client assets nationwide. For more information about FAI Wealth Management, please visit the website at https://www.faiwealth.com or call 410.715.9200.

 
 
 

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