New Tax Laws for 2020 and 2019 SECURE Act

New Tax Laws for 2020 Including the SECURE Act of 2019

Everyone is paying attention to the changes in the SECURE Act and rightly so. Our founder and top Wealth Manager Bruce Hosler even talked about it in an interview for Sonoran Living, a local Arizona TV channel. The spending bill itself also changed some tax rules.

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We’ve gathered the most significant changes that we think you should know about:

1. Required Minimum Distribution Age Raised from 70 ½ to 72 years old 

  • Under the SECURE Act, retirement accounts subject to RMD distributions are now required to begin at the age of 72 instead of 70 ½, for those who are not yet 72. The IRS will not be updating the life expectancy table until 2021, so those who turn 70 ½ within 2020 will not have to take RMDs. This aims to ensure that individuals are spending their retirement savings during their lifetime instead of using them towards estate planning or passing them onto beneficiaries. 
  • Surviving spouses who roll over a deceased spouse’s IRA can avoid penalties by delaying RMDs until the deceased spouse would have reached the age of 72, should they choose to remain a beneficiary. The SECURE Act allows for more time for financial planning.
  • Qualified Charitable Distributions (QCDs) will still have a starting age of 70½. 

2.  Maximum IRA Contribution Age Repealed 

  • If you have earned income, you may now contribute to your traditional IRA, even after the age of 70 ½. This will also allow more people to contribute to a non-working spouse traditional IRA. 
  • With the age limit being eliminated, back-door Roth IRA opportunities are more available, as well as spousal Roth IRAs.

3. Three New Retirement Savings Options for Small-Business Owners

  • Beginning in 2020 and moving into 2021, there are now three ways small businesses can save for retirement. 
  • First, the tax credit for start-up costs has been increased to $5,000, which will be available for the first three years. 
  • Second, for small-business owners who will open either a SIMPLE IRA or a new 401(K) with automatic enrollment, a $500 tax credit will be available. 
  • Lastly, in 2021, employers from different industries may now pool retirement plans, in efforts to lower administrative costs and overall plan costs.  

4. The Stretch IRA is eliminated (Your children must now withdraw the IRA within 10 years)

  • Non-spousal (i.e. your children) IRA beneficiaries will no longer be able to stretch IRA retirement benefits over a lifetime. 
  • The IRA must be distributed in no more than 10 years from the date of the death of the IRA owner beginning December 31st, 2019. The IRA must be completely emptied by the end of the 10th year. 
  • These six beneficiary examples are exempt from the 10-year rule: 
    • surviving spouse
    • minor children (up to state-given majority)
    • disabled individuals
    • individuals who are chronically ill
    • beneficiaries who are not more than 10 years younger than the IRA owner
  • This does not apply to beneficiaries who have already inherited an IRA prior to December 31, 2019, they are grandfathered in under the old rules.
  • These changes are drastic enough that everyone should re-evaluate their estate planning decisions in light of the new rules.

5. Some Employer Plans Are Prohibited from Offering Loans by Means of Credit, Debit, or Other Arrangements

  • This section aims to eliminate the opportunity for retirement funds to be used in everyday purchases or purchases that will ultimately take away from retirement funds.
  • 401(K) plans will no longer be accessible by means of a credit card or debit card arrangement, or other miscellaneous arrangements. 

6.  Changes to the “Kiddie Tax”

  • Tax on unearned income for a child under 18 or a full-time student under 24 claimed as a dependent will now be taxed at the parent’s marginal rate as they were previously instead of at trust tax rates. 

7. 529 College Savings Plans

  • 529 plan contributions have been made available to registered apprenticeships and qualified student loan repayment plans.

9. Medical AGI Floor Lowered Again

  • Beginning January 1, 2020, the medical threshold for itemized deductions has been lowered again temporarily to 7 ½ % instead of 10 %, as was required in prior law.
  • Additionally, the threshold that must be exceeded to deduct qualified medical expenses will remain at 7 ½ % for the tax years 2019-2020 (it was lowered from a previous rate of 10 % in 2007).
  • The threshold is also applicable to the exception of a 10% early withdrawal penalty on IRAs or other qualified retirement plans.

Securities and Advisory Services offered through Commonwealth Financial Network® Member FINRA/SIPC, a Registered Investment Adviser. Tax and accounting services offered by Hosler Wealth Management, LLC are separate and unrelated to Commonwealth. Commonwealth does not provide tax or legal advice. Fixed insurance products and services offered through CES Insurance Agency.


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