Highlights of the SECURE Act


The much-anticipated reform to required IRA distributions for account owners and their beneficiaries known as the SECURE Act of 2019 was enacted as part of the year end appropriations bill passed by Congress in late December.

The SECURE Act ended what is known as the “Stretch” IRA for most non-spouse designated beneficiaries who inherit IRAs starting January 1, 2020. Now under the new 10-year rule the beneficiary IRA account must be emptied by the end of the 10th year. There are no annual distribution requirements for the intervening 10-year period.

However, there are a few exceptions to the new 10-year rule for “eligible designated beneficiaries”. This group includes: Spousal beneficiaries, disabled beneficiaries, chronically ill beneficiaries, individuals that are not more than 10 years younger than the decedent, and certain minor children of the original account owner, until they reach the age of majority at which time they will be subject to the 10-year distribution rule.

The second significant change was made to the beginning age for required minimum distributions (RMD) which is increased from 70 ½ to 72 for account owners that did not turn 70 ½ before December 31, 2019.

Another item to note is that qualified charitable distributions (QCDs) are still available to qualified account owners that have reached age 70 ½ but have not reached the new RMD age of 72. It may be beneficial to use a QCD when the account owner is taking distributions between age 70 ½ and 72 and is otherwise making charitable contributions and utilizing the standard deduction. Utilizing a QCD will remove a portion of the distribution from taxable income.

The SECURE Act includes a new exclusion for the 10% early withdrawal penalty for a qualified birth or adoption, of up to $5,000 per child, beginning on either the date of birth or date which an adoption was finalized.

Additional non-retirement related changes included in the SECURE Act

• Section 529 College Savings Plan assets can be used to repay up to $10,000 in student loan debt
• Extension of the 7.5% limit of AGI on deductible qualified medical expenses for 2019 and 2020. The limit was set to be 10% of AGI

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