By Tim Kingsbury, Wealth Manager

The SECURE Act, passed on Dec. 20, 2019, contains some major changes governing IRAs and retirement plans, charitable contributions, 529 plans and college student loan debt, among other financial matters. In this blog, we focus on key provisions of the Act to help you plan ahead.

Required Minimum Distributions From Retirement Plans Raised to Age 72

Previously, the age triggering Required Minimum Distributions was 70½. The good news is the SECURE Act allows savings and investments to grow 1½ years longer in a tax-advantaged retirement plan – if you are born after July 1, 1949. If you are born before that date, you must still take your RMD at 70½. For those born after July 1, 1949, the first RMD must be taken by April 1, 2022.

End of the Stretch IRA beginning January 1, 2020

Non-spouse beneficiaries inheriting a pretax retirement account, such as an IRA, are now required to distribute the full balance by the end of the tenth year after receiving the inheritance (in most instances).  Previously, a beneficiary would calculate a new RMD based on their life expectancy. That allowed the IRA to “stretch” for multiple years or even decades.  The stretch IRA was a valuable estate planning tool, particularly for parents seeking to transfer wealth to their children. The change may necessitate revisiting your current estate plan. 

Roth IRAs & Roth Conversions

The Act increases the attractiveness of post-tax Roth IRA. Having both pre-tax assets (IRA) and post-tax assets (Roth) has always been advantageous. However, with passage of the Act, clients who anticipate having lower income years may want to consider converting pre-tax IRA assets to post-tax Roth assets.  While a Roth Conversion is a taxable event, it may be smarter to take that step in low income years, especially if planned out over multiple years.  Low-income years often occur between retirement and age 70, particularly if you delay receiving Social Security. 

IRA Contribution Age Limits Removed

Previously, no additional deductible IRA contributions were allowed once an RMDs started if the person was still receiving W-2 (payroll) income. That restriction is now gone. You can continue contributing to your IRA and grow those account balances. More good news.

Expanded 529 College Savings Plan Usage

$10,000 of a 529 Plan may now be used to pay down student loan debt. That is a lifetime limit per beneficiary, but a potentially very good use of 529 savings.  Additionally, 529 Plan funds may now be used for expenses incurred with Apprenticeship programs certified with the federal Department of Labor.  

Kiddie Tax Rate Reverts Back To Parents’ Tax Rate

Tax rates on unearned income for minors, also known as the kiddie tax, revert back to that of the parents under the SECURE Act.  In 2018 and 2019, trust tax rates were used for kiddie tax calculations when the 37% bracket kicks in at just $12,750 of income. That’s no longer the case. Please note that the new rules are retroactive for 2018 and 2019. Refiling taxes could make sense if a minor has an especially large UTMA/UGMA account. 

No Changes To Qualified Charitable Distributions (QCDs), Medical Expense Deductibility

After reaching age 70½, up to $100,000 may be withdrawn from an IRA account annually and sent directly via check to a charity. That QCD limitation remains the same under the SECURE Act. In years when someone is subject to RMDs, the QCDs can fulfill that requirement and avoid taxes incurred on the IRA withdrawal. Charitably inclined clients should evaluate the tax benefits of sending a QCD to charity versus gifting appreciated securities to charity. 

There was also no change in medical expense itemized deductibility under the Act. Medical expense deductibility still occurs when reaching 7.5% of Adjusted Gross Income for 2019 and 2020, instead of the proposed 10% hurdle. 

The Bottom Line

The SECURE Act creates some of the biggest changes in decades to retirement plans and savings and may directly impact your estate plan. Please reach out to your Wealth Manager to discuss the best course of action for you and your family.


The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents simply reflect the opinions and views of the authors. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice.