Keeping Your IRA a Little Longer

Portrait of family keeping their hands one another at home

Americans are living much longer. Some are running out of money before their death and need additional assistance from the Federal Government, which puts more strain on a system that’s bringing in less money than it’s paying retirees. On January 1, 2020, the SECURE Act (Setting Every Community Up for Retirement Enhancement) took effect, allowing you to save more and hang on to your retirement money a little longer before you get taxed.

Perhaps the biggest change among the new regulations is postponing the beginning of Required Minimum Distributions (RMD) from your IRA. The SECURE Act increases the age to begin RMDs from 70½ to 72. The new rules only affect people who turn 70 ½ in 2020. If you turned 70 ½ in 2019 you must begin taking RMDs at 70½.  Anyone who turns 70 ½ after January 1, 2020, can wait until 72 to begin RMDs.

Another important change to IRA rules is the length of time you can contribute to an Individual Retirement Account. Previously, individuals aged 70½ and older were ineligible to make IRA contributions. The SECURE Act eliminated age restrictions on contributions meaning you can make IRA contributions at any age, as long as you have earned income.

There’s a big change involving inherited IRAs, also known as stretch IRAs. An inherited IRA is one inherited from a non-spouse. Under the old rules, the beneficiary had to take annual Required Minimum Distributions, based on the beneficiary’s age. However, they could take those RMDs for as long as they live and stretch them over that person’s lifetime. That option is now gone and Inherited IRAs must be distributed, and taxed, in 10 years or less. Spouses, inheritors no more than 10 years younger than the original account owner, inheritors with disabilities, and minor children are excluded from the 10-year rule.

There are also contribution-limit increases for certain retirement plans. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $19,500 from $19,000. The catch-up contribution limit for employees aged 50 and over in these plans rises to $6,500 from $6,000.

The limit on Simple IRAs for 2020 increases to $13,500, up from $13,000 for 2019.

In addition, the income ranges for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs and to claim the Saver’s Credit all increased for 2020. For instance, the income phase-out range for married couples filing jointly who make contributions to a Roth IRA is $196,000 to $206,000, up from $193,000 to $203,000.

Previous articlePreparing for Your Digital Afterlife
Next articleFund an HSA with an IRA