CUNA compliance staff has been getting numerous questions regarding the new Individual Retirement Account (IRA) requirements resulting from the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act.
Staff reached out to Dennis Zuehlke, ERISA compliance manager with Ascensus, to get expert information on IRAs.
Q1: What are the new distribution requirements for nonspouse IRA beneficiaries?
A: For IRA owner deaths in 2020 or later, most nonspouse beneficiaries of IRAs will generally be required to distribute inherited amounts within 10 years. Exceptions include those who, at the time of the IRA owner’s death, are:
Q2: What is the new age for required minimum distributions (RMDs)?
A: The age when RMDs from Traditional IRAs must generally begin is increased from age 70½ to age 72. This change is effective for distributions required in 2020 and later years, for those who reach age 70½ in 2020 or a later year.
Q3: Is the birth or adoption of a child considered a “distribution event”?
A: Yes. The birth of a child or adoption of a child (or individual who is incapable of self-support) qualifies both as a plan distribution event and as an amount that is exempt from the 10 percent early distribution penalty tax (if applicable) for distributions of up to $5,000 in aggregate from IRAs.
These amounts may be repaid. This change is effective for distributions in 2020 and later.
Q4: Has there been a change to the allowable age for contributions?
A: Yes. Taxpayers with earned income can make Traditional IRA contributions at any age, not just for the years before reaching 70½, which was the previous requirement. This change is effective for 2020.
Keep in mind that while this change is effective for 2020, it does not apply to prior-year contributions made for tax year 2019.
Q5: Has there been a change to student contributions?
A: Yes. Certain stipend, fellowship, and similar payments to graduate and postdoctoral students will be treated as earned income for IRA contribution purposes. This is also effective for 2020 and later taxable years.
For more information contact your IRA servicer.