The SECURE Act, (“The Setting Every Community Up for Retirement Enhancement Act of 2019”), which became effective as of Jan. 1, is the most significant pension reform law in more than a decade.
The act makes several significant changes in the tax rules for qualified pension plans and individual retirement accounts. If you have significant pension and IRA holdings, it is imperative that you review these changes and their potential impact on your estate and gift plan. The changes will have substantial repercussions for retirement and wealth transfer planning, especially in the area of accelerating taxation of inherited IRAs.
Significant provisions in the SECURE Act include:
Increase in age for required minimum distributions (RMD). The act raises the trigger age for taking RMDs from 70½ to 72. If you did not reach age 70½ in 2019 or earlier, you will not be subject to RMDs until the year after you turn 72.
Removal of age limitation for contributions to traditional IRAs. If you have earned income, you may be eligible to make deductible contributions to a traditional IRA regardless of age. Previously, individuals were prohibited from making contributions beginning in the year they turned 70½.
IRA charitable rollover age unchanged. The act does not change the age of 70½ years at which you become eligible to take advantage of the IRA charitable rollover and make qualified charitable distributions (QCD) from your IRA directly to a charity such as Jewish Federation. This means that even if you are not yet required to take RMDs, you may benefit from the IRA charitable rollover if you are age 70½ or over. Note, however, that your QCDs will be reduced by any post-age 70½ deductible IRA contributions.
Elimination of most “stretch” IRA distributions. Prior to enactment of the SECURE Act, an individual beneficiary of a retirement plan could leave plan assets in a tax-deferred status for many years by spreading annual withdrawals over the life expectancy of a younger beneficiary in what was called a “Stretch IRA.” The SECURE Act changed that. With limited exceptions, it requires inheritors other than your spouse to take full distribution within 10 years, possibly increasing the tax bite. You may want to designate one or more charities, such as Jewish Federation, as your IRA beneficiaries and leave other assets to family members.
Alternative to stretch IRA. As an alternative to a stretch IRA, consider making a charitable remainder trust the tax-free beneficiary of IRA assets and provide for (taxable) trust payments of a fixed dollar amount or a percentage of the trust’s assets to your heirs over their lifetimes.
The SECURE Act makes designating Jewish Federation as a beneficiary of your IRA even more appealing. You can choose to benefit Jewish Federation generally or restrict your gift to Jewish Federation to an area of interest, program or agency which means the most to you and helps you meet your philanthropic goals. Moreover, Jewish Federation will honor and thank you during your lifetime for this wonderful act of tzedakah that will help sustain the community forever,
Because the act can have a profound impact on your estate plan, we urge you to consult with charitable giving professionals at Jewish Federation and your own professional advisors to assure that your plans are updated for these and other important changes.
For more information contact Director of Planned Giving and Endowments Rachel A. Gross at rgross@jewishphilly.org or 215-832-0572.
Disclaimer: The Jewish Federation does not give legal advice. The views expressed in this article are for informational purposes only and are not intended or written to be used, nor may they be used, as legal advice. In particular, and without limiting the foregoing, donors seeking tax or legal advice on which they may rely should consult their own professional advisers.
