Changes That May Affect You, Involving the SECURE and CARES Acts
By Paul Hynes, CFP®
July 2020
Recent months have brought a whirlwind of news and change. On top of everything, there has been significant activity in terms of new legislation and rule changes. Some of this may affect you. It’s understandable if you may have missed or not completely noticed some of these developments.
The SECURE Act was passed in December, and the CARES Act was passed in March. Dozens of changes were made in each. This is a summary of some of those changes that affect the most individuals. Changes to businesses and corporations are not included.
| Topic | New Rule | Previous Rule |
|---|---|---|
| Inherited IRAs | Non-spouse beneficiary inheriting an IRA after January 1, 2020 must take all the money out by December 31 of the tenth year following the year of death—called “the 10‑year rule” | Non-spouse beneficiary was able to spread the distributions over periods longer than ten years—called the “stretch IRA” |
| Required Minimum Distributions | The age at which required minimum distributions begin is 72 | The age was 70‑1/2 |
| For 2020, a temporary waiver of required minimum distributions; distributions that already occurred may be returned to the account and treated as a rollover, not subject to tax | Required minimum distributions must occur before December 31 each year or be subject to a 50% tax penalty | |
| Eligible Designated Beneficiary | Surviving spouse; minor child of decedent; disabled; chronically ill; not more than ten years younger than decedent—these people may be exempt from 10‑year rule | Only applied to surviving spouses, no one else |
| Early Withdrawal Penalty | Waiver of 10% penalty tax on 2020 withdrawals from a retirement plan or IRA before age 59‑1/2 ($100,000 cap) | Early withdrawals were usually subject to 10% penalty tax |
| Three-Year Rollover Period | Re-contribution of 2020 withdrawals from a retirement plan at any time during three-year period after the withdrawal will be considered a rollover and not be subject to tax | Any withdrawal not rolled over within 60 days would usually be subject to tax |
| 401(k) Plan and Other Plan Loans | The loan limit is increased to $100,000 | The loan limit was $50,000 |
| Charitable Contributions Deduction | Taxpayers can take a deduction for charitable contributions up to $300 for 2020, even if using the standard deduction | Charitable deduction was only allowed if the taxpayer itemized deductions |
Direct from the horse’s mouth: https://www.irs.gov/retirement-plans
This is just a summary; the devil is in the details, plus many of the changes are temporary. So, don’t rely on this article for advice. If you feel you have been or might be affected, discuss it with your legal, tax or financial advisor before taking action. It’s important to have these discussions early, before it’s too late.
Sources:
The SECURE Act Top Ten, by Mark Parthemer and Sasha Klein. American Bar Association Magazine, May-June 2020 (online) https://www.americanbar.org/groups/real_property_trust_estate/publications/probate-property-magazine/2020/may-june/the-secure-act-top-ten/
The CARES Act is Enacted into Law, by Frank S. Murray, et. al., Foley Lardner LLP blog, March 27, 2020.
https://www.foley.com/en/insights/publications/2020/03/coronavirus-cares-act-enacted-into-law