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What is the Secure Act and Could It Impact My Stretch IRA?

The SECURE Act of 2019 was passed earlier this year by the US House of Representative. It was expected to be considered by the U.S. Senate in the fall. The correct name for this proposed law is the Setting Every Community Up for Retirement Enhancement Act of 2019. Many believe that this bill will be passed by both branches of Congress before 2020.

The SECURE Act will eliminate the current rules that presently permit non-spouse IRA beneficiaries to "stretch" required minimum distributions (RMDs) from an inherited account over their own lifetime and potentially allow the funds to grow tax-free for decades. Instead, all funds from an inherited IRA generally must be distributed to non-spouse beneficiaries within 10 years of the IRA owner's death. The new rule will apply to inherited funds in a 401(k) account or other defined contribution plan.

The SECURE Act will extend the age that triggers Required Minimum Distributions (RMD) from 70½ to 72, which means you could let your retirement funds grow an extra 1½ years before tapping into them. If the beneficiary is the IRA owner's spouse, RMDs are still delayed until end of the year that the deceased IRA owner would have reached age 72. This age is presently 70½.

Presently, employees who have not worked at least 1,000 hours during the year are not allowed to participate in their employer's 401(k) plan. If enacted, the SECURE act will guarantee 401(k) plan eligibility for employees who have worked at least 500 hours per year for at least three consecutive years. The participant would also have to be 21 years old by the end of this three years. The SECURE Act would also let an IRA owner withdraw up to $5,000 following the birth or adoption of a child without paying the usual 10% early-withdrawal penalty. However, the owner will still owe income tax on the distribution, unless he or she repays the funds. If married, each spouse could withdraw $5,000 from his or her own account, without a penalty.

We know this article may raise a number of questions for you related to your estate planning. Do not wait to ask us your questions. Our attorney Amy McGarry is here to help you get the Florida estate planning you need for yourself and your loved ones.

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