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IRA Contributions and The Secure Act Update Thumbnail

IRA Contributions and The Secure Act Update

The deadline for making Traditional and Roth IRA contributions for the 2019 tax year is April 15th, 2020.  For those who had earned income in 2019 and who have not yet made a contribution for last year, you have about two months to do so if you wish.  Please note that filing an extension for filing your 2019 tax return does not extend the contribution deadline for Traditional and Roth IRA contributions.  The contribution limits for 2019 are $6,000 for those under age 50 and $7,000 for those over age 50.  You can make 2020 IRA contributions any time during the year and up to the tax filing date in early 2021.

Roth IRA contributions may be made at any age as long as you had earned income in that tax year.  Earned income is generated from employment or business ownership.   Investment portfolio or other forms of passive income do not count.  Roth IRA contribution limits are the same as defined for Traditional IRAs in the paragraph above.  Traditional IRA contributions may be tax deductible depending on your level of income and participation in an employer sponsored retirement plan.  Roth IRA contributions are never tax deductible, but do offer the benefit of being tax-free when withdrawn in retirement. 

The Secure Act passed by Congress in late 2019 moves the age for beginning Required Minimum Distributions (RMDs) from 70 ½ to age 72.   However, if you were already 70 ½ in 2019 or before you must continue RMDs even if you are under age 72.   Another twist in the new law is that you can now make contributions to your IRA at any age as long as you had earned income in that year.  Formerly, once you were subject to RMDs you could no longer make IRA contributions.   However, you cannot make a contribution for 2019 if you were age 70 1/2 or older as of Dec. 31, 2019. Thanks to the new law, you can make contributions for tax year 2020 and beyond.  

The Secure Act also places restrictions on IRAs inherited by non-spouses, in 2020 or later, regarding the time you have to distribute the assets.   All assets in inherited IRAs must be distributed within 10 years of the inheritance1.  There is no requirement to take annual RMDs, just to distribute all the assets and pay applicable taxes within 10 years.  Keep in mind that taking distributions annually in small increments may be a more tax friendly strategy depending on your level of taxable income and the size of the IRA distributions. We suggest coordinating with your financial advisor or tax preparer.  Formerly, you could stretch inherited IRA distributions over your entire lifetime and those who inherited IRAs as a non-spouse in 2019 or before can still do that.  Spousal inherited IRAs are an exception and are subject to the standard RMD rules for the inheriting spouse.  There are also some limited exceptions to the 10 year distribution rule related to inheritors that are disabled.

 Give us a call to review your situation regarding the best IRA choice for you at 941-778-1900 or click here to complete our contact form.  We work primarily with clients who desire our personal, yet structured process for planning and investing that relieves them of the day-to-day worry of the financial markets with freedom to pursue what they value most and allows them to feel confident and reassured. We call this process the “Waypoint Formula”.

1. https://www.washingtonpost.com/business/2020/01/06/no-your-ira-was-never-intended-be-vehicle-pass-along-your-wealth/