2020 Retirement Account Changes: SECURE Act, CARES Act

The SECURE Act, signed into law in December 2019, has implications for IRAs (Individual Retirement Accounts), including accounts held at Liberty Bank.  The goal of the SECURE Act is to make saving for retirement easier and more accessible.

Changes to IRA rules affect both IRA savers and those inheriting IRAs.

So now may be a good time to review and fine-tune your retirement plans.

Longer window to save

The SECURE Act allows you to save for a longer time.

As long as you’re still working and have earned income to contribute, you can keep making IRA contributions.

Before, you could only save IRA money until age 70 ½.

Required minimum distributions

In addition, you now can wait until you’re age 72 before you have to start taking money out of your IRA – known as Required Minimum Distributions (RMDs).

Before, RMDs started at age 70 ½.

The change applies to those reaching age 70 ½ on or after January 1, 2020.

Inherited IRAs

If you’re inheriting an IRA from someone who died on December 31, 2019 or later, all the assets in the account must be withdrawn within 10 years and you no longer can stretch the distributions across your lifetime.

This change may have tax implications, especially if you’re still working when you inherit an IRA. You must pay taxes on the money you withdraw, for example, and the additional income could bump you into a higher tax bracket.*

There are exceptions. Those exempt from that new ten-year rule include a surviving spouse, a minor child, a disabled or chronically ill person, and beneficiaries who are less than ten years younger than the person who died.

Penalty-free withdrawals for births, adoptions

If you’re having a new baby or you adopt a child, the SECURE Act now lets you withdraw up to $5,000 from an IRA without paying the 10% early withdrawal penalty.

CARES Retirement Plan Relief Measures

If you’re feeling a financial pinch because of a job loss, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law earlier this year, may provide some relief.

The CARES Act offers several options for you to access and manage your retirement accounts. Here are some basics:

  • Individuals may take up to $100,000 as a coronavirus-related distribution that is not subject to the IRS’ 10% early distribution penalty. Distribution must be made on or after January 1, 2020 and before December 31, 2020.
    • Applies to individuals, their spouses or dependents who are diagnosed with SARS-CoV-2 or COVID-19 using a CDC-approved test.
  • Required minimum distributions (RMD) are temporarily waived for 2020.
    • Applies to individuals age 701/2 and older and those with inherited IRAs.

If you already took your RMD in 2020, you may be able to rollover the distributed RMD, provided it is within 60 days of receiving the distribution and you have not completed a rollover within the past 365 days.

To ease the tax burden, the CARES Act gives you up to three years to pay taxes on the withdrawal.* You can repay all or a portion of the distribution within three years, and the repayments won’t be counted towards the annual contribution limits.

Before completing a withdrawal, it’s smart to talk with a licensed tax professional to learn about your options, eligibility, tax consequences, and what’s best for your personal situation.  

If you have questions about the SECURE Act or the CARES Act, you can talk with one of Liberty Bank’s IRA-certified bankers by stopping by a Liberty Bank branch. Learn more: www.libertybank.com/ira.

* Customers should consult with a licensed tax professional to obtain information regarding their options, eligibility and tax consequences prior to completing a transaction.

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