New law allows seniors to establish IRAs after 70

| Written by Linda D. Carley, Attorney and Former Judge for Spring 2020 Edition of OurSeniors.net Magazine |
A new federal law has expanded the ways seniors may contribute and withdraw monies from their retirement accounts.
Under the SECURE Act (Setting Every Community Up for Retirement Enhancement) just signed by President Trump and effective January 1, 2020, Americans in their seventies will have greater access and flexibility for retirement planning. The new law also extends the age for seniors to begin to take required minimum distributions (RMDs) by two years, and may require seniors to review how monies in a living trust are distributed to beneficiaries after the grantor’s death.
Repeal of Age restriction for IRAs
Prior to SECURE, seniors were restricted from establishing traditional individual retirement accounts (IRAs) after the age of 70. The new law, which is the broadest retirement reform in 13 years, repeals the age restriction for the establishment of traditional IRAs for tax years 2020 and beyond. It allows couples to invest $14,000 into a traditional IRA ($7,000 each) for the year 2020 and beyond regardless of their age.
Required Minimum Distribution pushed back
Before this act, it was necessary for seniors who were 70 ½ years old to take annual Required Minimum Distributions (RMDs) withdrawals from their tax-favored retirement accounts (including traditional IRAs, SEP accounts and 401k accounts) and pay the resulting income tax. The new law allows those who have not reached the age of 70 ½ by the end of 2019 to push back the date for RMDs until the age of 72. Seniors who will turn 70 ½ in 2020 or later will not need to start taking RMDs until after they have reached the age of 72. Now, seniors have an additional two years to do Roth IRA conversions without worrying about mandatory distributions.
Time limits established for IRA distributions to beneficiaries
Under the old law, a beneficiary of an IRA could stretch out RMDs over their lifetime. The new law requires that the beneficiary of such an IRA withdraw the inheritance within 10 years of the date of the owner’s death. Spouses and disabled beneficiaries are exempt from this provision.
To take full advantage of the options afforded by this new law, seniors with retirement accounts should consider setting up a consultation with their financial advisor and accountant. Seniors with a revocable or living trust may want to schedule a review of their trust with an estate planning attorney.