Important Changes to Individual Retirement Accounts (IRAs)

By TS Bank
Published: Mar 3, 2020 12:07:57 PM

We want to keep you informed on some new legislation that may impact you in retirement, may impact the tax implications for your family with any Individual Retirement Accounts (IRAs) left behind, or may assist your retirement further.

In December of 2019, a piece of legislation called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) passed Congress and was signed into effect. The most important provision of this act was the removal of the stretch required minimum distribution (RMD) provisions, meaning after the owner of an IRA passes, a non-spouse beneficiary must deplete that inherited account within 10 years. Before this change the beneficiary could take money annually based on their personal life expectancy. Now with the change, this can create higher RMDs while beneficiaries are in their working years, creating higher tax burdens to them. For example, let’s say Jane inherited her dad’s IRA. Jane now has up to 10 years to empty the account. There is some flexibility for the timing of the distributions because there is no RMD during the 10 year window, so Jane can take as much or as little at a single point in time during the 10 years. Because the account can continue to gain value, those gains will also be taxable, so it is advised to speak with a CPA or financial advisor to assist in the timing of distributions for an inherited IRA.

The SECURE Act also delays the age of which RMDs must begin. Previously, anyone age 70.5 would need to begin taking their RMD. Now, as long as an account owner has not attained age 70.5 before the end of 2019, that age is 72. This, coupled with pending IRS rules around RMD factors, will reduce the amount of money retirees need to withdraw each year in retirement due to the RMD rules. There are also new penalty free withdrawals for birth or legal adoption, a client can now take up to $5,000 out of their IRA penalty free if under age 59 ½ to pay for expenses attributable to a birth or adoption. The funds must be used within one year of the date of birth or date of adoption.

The last important change that could impact you, is the ability to continue saving after age 70.5. Historically, once you reach that age you could no longer contribute to a Traditional IRA. Now for those still working (and those married to someone with earned income), the savings limitation has been repealed to assist for further retirement savings as there is no longer an age limit.

Here are some additional important limits: 

2019/2020 IRA Limits:
$6,000 with a $1000 catch-up for people age 50 or older for a total of $7,000

2019 HSA Limits:
Single Plan:
$3,500 with a $1,000 catch-up for people age 55 or older for a total of $4,500

Family Plan:
$7,000 with a $1,000 catch-up for people age 55 or older for a total of $8,000

2020 HSA Limits:
Single Plan:
$3,550 with a $1,000 catch-up for people age 55 or older for a total of $4,550

Family Plan:
$7,100 with a $1,000 catch-up for people age 55 or older for a total of $8,100

We believe it is our job to help keep you informed and up-to-date on these large impactful modifications. At TS Bank we are able to help you plan accordingly for what to do with your personal accounts, or any inherited accounts you may receive in the future. Similar to other institutions, we offer rollover retirement accounts along with Roth IRA conversion assistance. As part of our banking family, you have access to our team of professionals with the knowledge and commitment to meet your needs.

Contact us at 844-487-3030 about any of your current retirement or investment questions or needs and we will be happy to answer them to keep you and your family on the path to generational prosperity.

Written by TS Bank