Retirement savers have a win and a loss at the end of 2019

Who says Congress is tied up with impeachment? Both the House and the Senate passed a Christmas-time bill that gives retirement savers both a gift and a piece of coal.

A gift! Required distributions start later

The good news is that if you’re not already of the age 70 ½, then you can delay your required minimum distributions from your retirement accounts until you are age 72.

For decades, the law has required anyone who has a retirement account to begin distributions the year in which they turn 70 1/2. Now, the rule has been postponed until 72. That is an age that is much more easy to remember. The bad news is that if you’ve already started your IRA required distributions, then you’ve got to keep pulling them out. Only folks who turn 70 1/2 next year, 2020, or later benefit from this Senate’s Santa gift.

A lump of coal: No more Stretch IRA

The Senate left a lump of coal for our kids and younger generations who are inheritors. A surviving spouse may roll the decedent’s IRA into her own account. A child who inherits an IRA may continue to defer taxes until they reach the age of majority (determined by their state of residence), and then defer for 10 years after that. Other than these (and a handful of other rare) exceptions, anyone who inherits a retirement account after December 31, 2019 will have to pull out the money and pay income taxes within 10 years.

Until now, we’ve all benefited from the “stretch IRA,” which allows the inheritor to spread the income over their life expectancies. And then a second generation could inherit the retirement account and spread it over their life expectancies. But no! The stretch is gone! This is a big tax increase, and it’s not getting a lot of attention.

To recap, any IRA, Roth IRA, 401k, 403b, 457, TSP, profit sharing plan, or another retirement account qualified with the IRS for tax-deferral faces a sure-death 10 years after we pass away[1]. Our inheritors may no longer spread the payments from the IRA over their life expectancies. They may pull the money out sooner, but no later than, the tenth year after the decedent’s death. 

[1] For some government plans, the stretch rules don’t change until the year 2022. Ask your wealth manager for the details.

Published by karlfrank57

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