BY JOE KRISTAN, CPA, Partner, Eide Bailly

They scheduled a budget fight, and a tax bill broke out.

The President, the Senate, and the House of Representatives went into December in another budget standoff. Another disruptive shutdown of “nonessential” government services loomed. The crisis tested statesmanship of the most powerful men and women in the government. And they rose to the occasion with … a retirement plan bill.

The retirement bill, known as the “SECURE Act,” was only one part of the budget deal, but it is the part that immediately impacts retirement planning. Whether you are planning for your retirement contributions or your distributions, the game has changed.

You are never too old to fund your IRA. Individual retirement accounts have always had an age cap.  No more. Under the new rules, if you keep on working past age 70 ½, you can keep on contributing to your IRA starting in 2020.

You can leave your cash in your IRA a bit longer. Traditional IRAs (not the “Roth” kind) eventually require you to start withdrawing your IRA savings based on your life expectancy. Taxpayers who turned 70 ½ before the end of 2019 are required to start withdrawing funds from their IRAs by April 1 in the year after they reach that milestone. Many taxpayers would rather leave funds in their IRAs, where investment earnings aren’t taxable, but stiff penalties apply if you fail to take your required distributions.

Under the SECURE Act, the trigger age for taking these “required minimum distributions,” or RMDs, is moved to age 72 for taxpayers who reach age 70 ½ in 2020 or later. But if you hit 70 ½ in 2019, as mentioned above, you are still covered by the old rule and you still have to take your first RMD payment by April 1, 2020. The same rules apply to other retirement plan interests, such as 401(k) accounts.

You can’t take it with you. The SECURE Act changed the way IRAs and other retirement plan accounts held at death are treated. For IRAs held by taxpayers who died before 2020, survivor beneficiaries could usually take distributions at least as slowly as the decedent could. If the decedent died before reaching age 70 ½, the beneficiaries could generally spread the distributions over their own life expectancies, stretching out the IRA tax advantages that much longer.

No more. Except for surviving spouses and other “designated beneficiaries,” inherited IRA balances must be fully withdrawn by the end of the 10th calendar year following the account owner’s death. One small consolation: it’s up to the beneficiary to decide whether to take it out in pieces, or to wait until the 10th year and take it out all at once.

Spouses and other “designated beneficiaries”—minor children of the deceased account owner, chronically ill individuals and individuals no more than ten years younger than the account owner—may take distributions over their own life expectancies. But even here there is a catch: once the minor children reach age 21, they go on a 10-year withdrawal clock, too.

Kiddie tax: complications, but also pension income benefits. Prior to 2018, children with significant investment income had to pay tax on their “unearned” income at their parents’ rates. This meant they had to wait for the parents’ return to be completed before completing their own returns—often for months.

For 2018 and 2019, the link with the parent return was broken. Instead, children had to compute the tax on their unearned income at trust rates, which hit the top 37% bracket at less than $13,000 of income.

If they think of this “kiddie tax” at all, most people think of it as affecting wealthy kids with inherited wealth. Unfortunately, “unearned” income also includes pension income. For children with pension income, including children of service members killed in action, using the trust brackets often resulted in a punishing tax increase. To remedy this, Congress is returning to the pre-2018 rules starting in 2020.

The SECURE Act also allows taxpayers affected by these rules the option to file their 2018 and 2019 returns using the pre-2018 rules. This will allow taxpayers hit hard by these rules in 2018 to amend their returns and claim a federal refund.

It’s complicated. The rules covering retirement contributions and distributions and taxation of “unearned” income are complex, and small differences in facts can mean big changes in results, so consult your tax pro on your specific situation. Learn more at

joe-kristan-headshot-1    Joe Kristan
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