Q. I hear that Congress just passed the SECURE Act. What does that mean for doctors?
Explore This IssueACEP Now: Vol 39 – No 03 – March 2020
A. Most years, Congress passes a few rules that affect your taxes and retirement accounts. After the major changes that went into effect in early 2018, the changes this year (the SECURE Act) seem pretty minor. But part of your annual “continuing financial education” should be getting up to speed on changes like these. Let’s briefly go through them one by one.
There were five small changes to individual retirement arrangements (IRAs), although some of them also apply to 401(k)s.
The first change is that IRA owners can now delay taking required minimum distributions (RMDs) to age 72 instead of age 70½. This gives people one to two more years before they have to take money out of their IRAs and 401(k)s or else pay a penalty of 50 percent of what they should have taken out. This is a pretty minor change since 80 percent of people don’t even wait until age 70 to start tapping their IRAs.
The second change is that inherited IRAs can no longer be stretched indefinitely. Now you must withdraw all of the money from an inherited IRA within 10 years. Of course, you don’t have to take anything out for the first nine, which still allows compound interest to continue for almost a decade without interference from taxes. However, if you have large IRAs and “stretch IRAs” were a major part of your family wealth transference and estate plan, this could have a major impact on how much your heirs actually receive over decades. If you have a trust as the beneficiary of your IRA, you need to discuss this with your estate planning attorney now.
The third change affecting IRAs is that you can now contribute to them after age 70 if you are still working.
The fourth change is a new exception to the 10 percent penalty for withdrawing money from your retirement accounts prior to age 59½—the birth or adoption of a child now allows you to withdraw $5,000 from your IRA penalty-free. This is added to a long list of exceptions such as disability, a first home, medical expenses, and even early retirement via the substantially equal periodic payments rule.
The fifth change is that you can now use a stipend, such as a graduate student or military stipend, to contribute to an IRA (hopefully a Roth IRA at that income level).