Major Upcoming Changes for IRAs

2019 IRA changes

The most comprehensive changes to private retirement plans in more than a decade are gaining momentum in Congress. A key House committee unanimously passed a bill known as the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), intended to increase the flexibility of 401(k) plans and improve access to the accounts, particularly for small businesses and their employees.   The identical Senate bill is called the Retirement Enhancement and Savings Act (RESA).

The bills are of the few proposals with a significant chance of becoming law despite a divided Congress. Elements of the bill have been debated among members for years and enjoy wide support among both industry groups and advocacy organizations and offer significant changes in existing retirement saving legislation and IRA planning.

The legislation has introduced the following changes:

  • Required Minimum Distribution (RMD) Beginning Date would be Age 72. RMD’s are amounts that the US federal government requires one to withdraw annually from traditional IRAs and employer-sponsored retirement plans. While the existing law requires distributions starting at age 71½ , the new laws allow individuals to postpone taking retirement distributions until the age of 72, allowing them to delay taxation as long as possible.
  • IRA Contribution Age Limit Would End. Existing legislation provides that a working individual cannot make contributions to his/her IRA account after the age of 70 ½; however, the SECURE Act and RESA permit individuals to continue making IRA contributions for any year in which he/she has compensation.
  • 10-Year Maximum for Non-Spouse Inherited IRA’s. Under the new legislation, the distribution period for non-spouse designated beneficiaries would be limited to 10 years rather than the beneficiary’s lifetime, unless the beneficiary is disabled or chronically ill. The change, although it may seem detrimental, provides flexibility to retirees in planning out their distributions.

With the new legislation gaining momentum, employers and employees alike will be heavily impacted, so staying informed on these changes will ensure responsible management of IRA accounts and retirement saving practices for years to come.