ASK THE ADVISERS

The views and options expressed in “Ask the Advisers” are solely those of Keith Singer.

New IRA Rules

On December 20, 2019 President Trump signed The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The law consists of 29 provisions covering many changes to qualified plan rules, including allowing small employers to join together to make it easier to offer their employees retirement plans. It also allows people who are over 70 and half year old to continue to contribute to their IRAs if they have earned income. There are, however, two key provisions that will affect current retirees. The Act changed the age when retirees must start taking Required Minimum Distributions to 72. Secondly, the law eliminated the ‘stretch’ provision of retirement accounts. Under prior law, qualified retirement accounts that were left to one’s human beneficiaries could be withdrawn over that beneficiary’s life expectancy. This made traditional IRAs very attractive as a retirement tool as the funds could be expected to grow tax deferred for many decades. However now, unless the beneficiary is the spouse, the funds must be withdrawn over the 10-year period following the death of the owner. This law makes a tax-free Roth IRA even more attractive because now IRA beneficiaries will be receiving much more taxable income over a shorter period, which could push them into a higher federal and state income tax bracket. A Roth IRA account does not have Required Minimum Distributions. Therefore, it can grow tax free undisturbed for their life and the life of their spouse. The surviving spouse can leave it to their children, who can then allow it to continue to grow taxfree for another decade. With the Tax Cuts and Jobs Act (TCJA), individual tax cuts are set to expire on December 31, 2025. Almost everyone is projected to be in a higher tax bracket, including one’s beneficiaries. Therefore, it’s critical to do an analysis based on a variety of factors on the merits of converting all or a part of a traditional IRA to a ROTH IRA.