10 Key Changes To IRAs In 2020 Under SECURE Act

Individual retirement accounts, including traditional, Roth, inherited, deemed, Simple and SEP, are seeing a lot of changes this year following the passage of the Consolidated Appropriations Act in December. Groom Law Group's Elizabeth Dold examines the top 10 IRA changes to watch.

The Consolidated Appropriations Act of 2020 includes a number of key IRA changes, all of which are effective in 2020. Most were part of the broader SECURE Act expanding coverage for retirement plan participation, facilitating lifetime savings and increasing access to retirement funds.

The SECURE Act took effect Jan. 1. The top 10 IRA provisions, set forth below, may impact any number of types of IRA (e.g., traditional, Roth, inherited, deemed, Simple and SEP).

For IRA providers, many of these provisions will require extensive system changes, updated policies and procedures, distribution forms, IRS reporting, and IRA governing documents.

For IRA owners, the minimum required distribution changes will spark reconsideration of various estate planning techniques and revised beneficiary designation elections, as current beneficiary designations (and the various trust vehicles) could well upset existing estate plans—which will no longer have the intended results.

IRS guidance—including impact on governing IRA documents, Form 1099-R/5498 reporting, new model IRA forms, possible transition relief for 2020, etc.—on these new provisions is needed and hopefully will be released over the coming months.

1. Post-Death Minimum Required Distributions Accelerated—Elimination of the Stretch IRA

   Current Rules: Distributions must be paid out following the death of the IRA owner. The rules vary if the IRA owner dies before or after they reached age 70-1/2. In general, the rules permit distributions to be paid over the designated beneficiary's life expectancy (so-called stretch IRAs). If there is no designated beneficiary, the IRA must generally be paid out over no more than 5 years.

   New Rules: In general, distributions after death of the IRA owner must be made by the end of the tenth calendar year following the year of death. However, payments can be made over the beneficiary's life expectancy, if the beneficiary is (1) a surviving spouse, (2) a disabled or chronically ill individual (or certain trusts for such persons), (3) a beneficiary no more than ten years younger than the IRA owner, or (4) a minor child of the IRA owner (generally, until the child reaches majority). (The existing...