Due to life expectancies increasing, some are choosing to continue to work longer. These two changes brought by the SECURE Act could be beneficial to those people. The Setting Every Community Up for Retirement Enhancement (SECURE) Act has been one of the largest overhauls of the retirement system in the U.S. in decades.
Traditional IRA Contributions continue after age 70 ½
Before the SECURE Act, savers were not allowed to make contributions to their Traditional IRA once they turned 70 ½. For those who retired before 70 ½, this rule might not have been as restrictive because they were no longer earning income. But for people who extended their careers after 70 ½, they could no longer contribute earned income, making this rule restrictive.
The deadline for making a contribution for the 2019 tax year is April 15, 2020, but people cannot make a contribution for 2019 if they were age 70 1/2 or older as of Dec. 31, 2019. However, thanks to this new law, this same person can start making contributions again for tax year 2020 and later.
Required Minimum Distributions (RMDs) kick in at age 72
Savers were required to start taking their RMD from both Traditional and Roth IRAs when they turned 70 ½. And this was to be done by April 1 following the year that they turned 70 ½. Any RMDs that are not taken in full, can be subject to a 50% penalty. This means that if someone did not take a $5,000 distribution, they would forfeit $2,500 when they did take it out. However, the new SECURE act delays the RMD deadline to age 72.
Generally, people must begin taking RMDs from tax-favored retirement accounts including traditional IRAs, SEP accounts, 401(k) accounts, etc. which all can affect taxes. However, RMDs are not required to be taken from any Roth IRA accounts (excluding inherited Roth IRAs). There is an exception if one still works after reaching 72, they don’t own over 5% of the company they are employed by, they can postpone taking RMDs from the employer’s plan(s) until after they have retired.
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