In Advancement Podcast

secure act

On December 20, 2019, President Trump signed into law the SECURE Act which makes a number of significant tax law changes effecting retirement planning as well as planned giving.  The new legislation addresses a wide variety of areas that are likely to impact our alumni and friends. Keith Johnson unpacks the new policy in this episode of Advancement.

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Transcript:

On December 20, 2019, President Trump signed into law the SECURE Act which makes a number of significant tax law changes effecting retirement planning as well as planned giving.  The new legislation addresses a wide variety of areas that are likely to impact our alumni and friends.

The changes made as a result of this new law became effective January 1, 2020. One of the most significant changes impacts:

  1. Required Minimum Distributions (RMDs)

As of January 1st, you will not be required to start withdrawing money from your traditional IRAs and employer retirement accounts such as 401(k)s and 403(b)s until age 72. Previously the law required withdrawals to start at age 70½.

So, if you turned age 70½ in 2019; or in other words, born prior to July 1, 1949, you will still need to take your first RMD for 2019 no later than April 1, 2020. Also, if you are currently receiving RMDs because you are already over age 70½, you must continue taking your RMDs. Only those who will turn 70½ in 2020 or later may wait until age 72 to begin taking required distributions. That means those born on July 1, 1949 or later can wait until age 72.

  1. You Can Contribute to Your Traditional IRA After Age 70½

Beginning in the 2020 tax year, the new law now allows you to contribute to your traditional IRA even after you turn age 70½, provided you have earned income. But, a word of caution is necessary here – if you are over 70½, you may no longer make prior year traditional IRA contributions. They must be made during the actual calendar year.

  1. Qualified Charitable Distributions (QCDs) from your IRA are still allowed at age 70 ½

IRA owners age 70 ½ or older may continue to make charitable contributes directly from their IRA and avoid all taxes up to $100,000 annually.  Another word of caution is needed here – there are special circumstances and exceptions to consider if you make a deposit into your IRA after reaching age 70½. This new rule complicates the decision to make QCDs for any IRA owner who makes deductible contributions to their IRA after age 70½.

Qualified Charitable Distributions made in 2020 or later, the $100,000 QCD limit for that year is reduced by the aggregate amount of deductions allowed for prior tax years  under the Secure Act change. In other words, deductible IRA contributions made for the year you reach age 70 1/2 and later years can reduce your annual QCD allowance.

If you make no deposit into your IRA, the entire amount of a QCD can be excluded from your income.

  1. The Secure Act now allows the use of 529 Accounts for qualified student loan repayments up to $10,000 annually.

So, if you have money left in a 529 plan, you can use those funds to make student loan repayments.

  1. “Stretch” IRA eliminated for most non-spouses.

When an IRA is inherited by a non-spouse who is more than 10 years younger than the deceased, distributions can no longer be stretched over his or her life expectancy. Instead, the new owner must empty the inherited IRA within 10 years unless the heir is a minor child of the deceased owner, chronically ill, or disabled. However, there are no RMDs during the 10 years. The owner can take distributions any way she wants as long as she withdraws all funds within the 10 years. Designated beneficiaries of IRAs inherited prior to 2020 are grandfathered in under the old rules; they can continue to take distributions over their life expectancies.

Tax law changes almost always have an impact on the way we manage our personal finances as well as the way we make contributions to the charities we love.

At Cairn University and The Regency Foundation, we want to be a valuable resource of information and ideas that can help you make wise decisions. We want to help you improve efficiency and effectiveness when it comes to giving. If you have any questions about what you heard today, feel free to contact me by email at kjohnson@cairn.edu.

We are so grateful for the significant number of donors who give to Cairn University, whether it be gifts from an IRA, gifts of stock, or through one’s estate. Your support provides scholarships and grants to more than 90% of our student body.

So, on behalf of our students, we say thank you!

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