By: Nicole T. Strbich, CFP®, CPWA®, EA - Director of Financial Planning
The SECURE act was a very impactful piece of legislation that would still be top of mind if it weren’t for the events and changes that have followed since its passage in December 2019. Among other things, the SECURE act increased the age of Required Minimum Distributions (RMD) to 72 from 70.5.
Retirees should consider taking advantage of these extra years before RMDs start by completing conversions of part of their traditional IRAs into ROTH IRAs. These conversions reduce the amount of future RMDs and allow taxpayers to pay tax on the conversion of this income at potentially lower tax brackets than they may be in once they are 72.
Effective January 1, 2022, the IRS has updated the tables used to calculate required minimum distributions (RMDs) for retirement account owners age 72 and above. These changes reflect longer life expectancies and will generally extend distribution periods providing a slight reduction to the annual distributions required. These changes will be automatically updated next year if your custodian provides your RMD amount on your account statement.
One of the other significant changes in the SECURE act was the elimination of the ability for non-spouse IRA beneficiaries to stretch out the IRA distributions over their lifetime. Most of these beneficiaries now must fully distribute inherited IRAs within 10 years. For many individuals this creates additional tax liability due to the compacted timeline and higher tax brackets due to above average taxable income. With the expectation for higher taxes coming in the next few years, it is more important now for IRA owners to consider tax planning for themselves and for their next generation.