Creating a Houston estate plan and preparing for retirement can often be an extremely stressful process, especially with the passage of new laws and regulations that impact a person’s plans. One such law that affected many people’s retirement savings was the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act came into effect on January 1, 2020, and created new requirements for defined contribution plans, such as 401(k)s and individual retirement accounts (IRAs). Below are some of the retirement and estate planning aspects most impacted by the passage of the SECURE Act.
Individual Retirement Accounts
Prior to the SECURE Act, an individual had to start withdrawing funds from their IRA, called required minimum distributions (RMDs), after they turned 70 ½ years old. Now, individuals are not required to withdraw from their IRA until they reach 72 years old. As there are income tax payments associated with RMDs, the SECURE Act can help reduce a person’s overall taxation rate. The SECURE Act also removed the age limit for IRA contributions; now, people can contribute to their IRA at any age, as long as they are still working. Before the passage of the SECURE Act, where removing funds from an IRA before turning 60 years old would make the withdrawal subject to income tax, people can now draw up to $5,000 from an IRA penalty-free after the birth or adoption of a child.