In the days before going on recess for the holidays, Congress pushed through significant tax legislation as part of the year-end spending bill. As you wrap up your 2019 year-end tax planning and look toward 2020, you should be aware of provisions within this legislation that could significantly impact your personal tax situation.

The legislation includes the passage of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE” Act). The SECURE Act is being billed as the most significant retirement legislation in more than a decade. Most notable within the Act are two major changes to retirement required minimum distribution (“RMD”) rules that will make it necessary for many Americans to focus on immediate retirement income planning.

The two major changes to the RMD rules are:

  1. Instead of the required beginning age for RMDs being set at 70 ½, the required beginning age has been pushed to age 72, effective for individuals turning 70 ½ after December 31, 2019.
  2. The “stretch” IRA is going away for most beneficiaries, generally effective for distributions by reason of death after December 31, 2019.

Under previous rules, distributions from IRAs and other defined contribution plans to non-spouse beneficiaries could be stretched out over the life expectancy of the beneficiary. Under the SECURE Act, however, the entire account is required to be distributed within 10 years of the owner’s death.  As with most things in life, there are exceptions. Those meeting the eligible designated beneficiary status thus considered exempt from the 10-year RMD rule include:  surviving spouses, heirs less than 10 years younger than the decedent, chronically ill individuals, disabled individuals, and minors.

Retirement income planning will involve reviewing projected RMDs and deciding when they should begin as well as deciding the most beneficial way to distribute these amounts. There are strategies to minimize the tax implications of potentially higher RMDs. In addition, you may need to reconsider beneficiary designations as well as existing trust provisions.

Beyond the changes to the RMD rules, there other retirement related changes in the SECURE Act including permitting qualified birth or adoption distributions up to $5,000, the creation of a new pooled multiple employer plan, an increase to the small employer plan start-up credit, and many others. Notable non-retirement provisions within the legislation affecting individuals include changes to the Kiddie Tax rules (back to using the parents’ top marginal tax bracket), as well as so-called “extenders” including the reduction in the adjusted gross income floor for medical and dental expense deductions from 10% to 7.5%, the above-the-line deduction for tuition and fees, the treatment of mortgage insurance premiums as deductible qualified residence interest, and the exclusion of qualified principal residence indebtedness from gross income.

Knowing that you and your family will be taken care of when it comes to planning for your future provides peace of mind. While there are many strategies for tax and retirement planning, it is important that you take your entire tax situation, savings, goals and retirement plan into consideration. If you would like to discuss how these new rules may impact your personal tax situation, please contact your BMSS tax advisor and let us help you plan in the present so that you and your loved ones can be better prepared for the future. You can reach us at (833) CPA-BMSS.

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