2020 Exemption Amounts and 2019 Secure Act

2020 Exemption Amounts and 2019 Secure Act

 

KEEPING YOU INFORMED…

1. THE SECURE ACT

On December 20, 2019, President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”).  This legislation makes important changes to the rules governing retirement savings and retirement plans.

The following is a brief outline of the key provisions of the SECURE Act that impact individuals:

Change in Required Minimum Distribution (“RMD”) Beginning Date:

Pursuant to the SECURE Act, an individual must begin receiving RMDs from his or her retirement plan (other than a defined benefit plan) or IRA no later than April 1 of the year after the year in which the individual attains age 72.  Prior to the SECURE ACT, the required beginning date for RMDs was April 1 of the year after the year in which individual attained age 70½.  This provision applies to individuals who attain age 70½ after December 31, 2019.

Revised Rules for Post Death RMDs:

Before the SECURE Act, the RMD rules allowed non-spouse designated beneficiaries of a decedent’s retirement plan or IRA to “stretch” distributions over their life expectancies.  The SECURE Act generally requires non-spouse designated beneficiaries to withdraw the full balance of the retirement plan or IRA within ten years of the death of the plan participant or IRA owner.

Consistent with the law in effect prior to the enactment of the SECURE Act, a surviving spouse may rollover the decedent’s retirement plan or IRA balance into his or her own IRA and commence distributions at age 72 or elect to receive distributions over his or her lifetime.

Additional exceptions are provided for a non-spouse designated beneficiary who is: (a) disabled or chronically ill; (b) not more than ten years younger than the plan participant or IRA owner; or (c) a minor child of the plan participant or IRA owner.  In each of these cases, the beneficiary may elect to receive distributions of the decedent’s retirement plan or IRA over the beneficiary’s life expectancy, except that the minor child will become subject to the ten year limitation when he or she attains the age of majority or, if later, completes his or her education up to age 26.

These revised rules are generally effective for RMDs with respect to plan participants or IRA owners who die after December 31, 2019.

Elimination of Age Restrictions on Contributions to Traditional IRAs:

For tax years beginning after 2019, the SECURE Act eliminates the prohibition on making traditional IRA contributions for individuals who have attained the age of 70½ years or more.

Penalty-Free Withdrawals for Birth or Adoption:

Except in limited circumstances, a 10% early withdrawal penalty applies to withdrawals from a retirement plan or IRA before age 59½.  The SECURE Act allows penalty-free withdrawals of up to $5,000 in the one-year period following the birth or adoption of a child.

2. 2020 ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAX EXEMPTIONS

For 2020, the Federal estate, gift and generation-skipping transfer tax exemptions have been increased to $11,580,000 per person ($23,160,000 for married couples), and the New York State estate tax exemption has been increased to $5,850,000.

WE RECOMMEND YOU CONTACT JEFFREY ZANKEL OF THIS OFFICE SO THAT WE MAY REVIEW YOUR EXISTING ESTATE PLAN, CREATE AN ESTATE PLAN FOR YOU IF YOU PRESENTLY DO NOT HAVE ONE, AND REVIEW HOW THE PROVISIONS OF THE SECURE ACT MAY APPLY TO YOUR RETIREMENT ACCOUNTS.

THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE.  THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.

© Lamb & Barnosky, LLP 2020