How Does the SECURE Act Effect Traditional IRA Contributions and RMDs?

Sheri Pan, CFP ®, Master in Taxation

March 19, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in December 2019, implementing extensive changes to retirement planning and saving. Two of those changes impact traditional IRA contributions and required minimum distributions (RMDs) from retirement plans. This article summarizes these two changes so you can understand how they affect you.

Traditional IRA Contributions

In the past, you had to stop making contributions to your traditional IRA when you reached the age of 70 ½. But, under the SECURE Act, that age cap has been lifted. Now, you’re able to continue making contributions into your traditional IRA past that age as long as you have earned income.

This adjustment was made to accommodate the fact that many Americans are now living longer and working well into their 70s. The elimination of the age cap gives you more time to save and earn critical income in to finance your retirement.

For those over 50 years of age, this is significant because you’re allowed to make $1,000 catch-up contributions into your plan along with the allowed annual $6,000 contribution. So, you can make a total contribution of $7,000 a year until you actually stop working.

But, here’s the deal. This only applies to those who had not reached the age of 70 ½ in December 2019. If you’d already turned 70 ½ in 2019, you’re unable to continue contributing to your IRA, even if you are working.

Required Minimum Distributions

Under the old law, you had to begin taking your RMDs when you turned 70 ½ years of age. Thanks to the SECURE Act, you can now wait until you turn 72 to start taking these distributions. This applies to traditional, SEP, and SIMPLE IRAs, 401(k)s, and other defined contribution plans.

Here again, if you turned 70 ½ by the end of 2019, this doesn’t apply to you. You must take your first RMD by April 1, 2020 and continue taking them for the duration of your lifetime.

Even though the age has been extended, the time frame to begin taking RMDs remains the same. You can take your first RMD after your 72^nd birthday (in the same year). But, you can wait until April 1 in the year after you turn 72 to do so. Keep in mind, once your date to start taking RMDs arrives, they must be taken annually. So, if you wait until the following year after you turn 72 to take your first one, you’ll be taking two RMDs that year.

Tax laws can be confusing, so consult the proper professional for detailed information on how these SECURE Act provisions apply to your individual situation. Hopefully, the information we have provided gives you a better understanding on how RMDs and traditional IRA contributions are handled. But this article has been written for informational purposes only and should not be considered tax or legal advice.