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Secure Act Brings Major Changes to Retirement Plans

Effective January 1, 2020, President Trump signed a law which makes major changes to IRAs, 401(a), 401(K), 403(b) and 457(b) retirement plans (hereinafter “retirement plans”) with the passage of the SECURE ACT (“Setting Every Community Up for Retirement Enhancement”). 

The age at which a person must take Required Minimum Distributions (RMDs) from their retirement plan has increased from age 70 ½ to age 72. This allows the retirement plan to grow tax-deferred for an extra year and a half before a person is required to take RMDs. 

In addition, individuals may now contribute to their retirement plan at any age as long as they are still working.  Previously, no additional contributions could be made after age 70 ½.  

Unfortunately, the SECURE ACT eliminates “Stretch IRAs.” Previously, the owner of an IRA or similar retirement plan could leave their retirement plan assets to beneficiaries and the beneficiaries would not have to take RMDs until they reached 70 ½.  

Under the new law, the beneficiaries must withdraw the entire IRA within 10 years of the owner’s death and pay the required income taxes on withdrawals.  However, this change does not apply to beneficiaries who are surviving spouses, minor children, chronically ill, disabled, or no more than 10 years younger than the deceased IRA owner.

Please note that the SECURE ACT does not apply to individuals whose benefits have already been annuitized.

This law does not change the treatment of retirement plans by Medicaid.  In order to qualify for Community Medicaid, which provides home care aides, an individual may only have $15,750 in total assets and income up to $875 per month (2020).

Under current Medicaid law, the value of your retirement accounts are exempt resources and would not be counted when determining the amount of assets you own for Medicaid eligibility purposes.  However, the RMDs received from the retirement plans would be counted as your income.

In light of this new law, you should review your retirement plans and beneficiaries and discuss with your attorney and tax professional.