What does the SECURE Act mean for me?

Yes, beginning with tax year 2020. Although the law passed in late 2019, its effective date was January 1, 2020. This means that an individual with earned income can now make a tax year 2020 Traditional IRA contribution at any age, though they still cannot make a tax year 2019 contribution if you turned 70½ by Dec 31, 2019, even though the IRS allows tax-payers to make a 2019 contribution through the tax-filing deadline in 2020 (July 15, 2020).

That depends on the type of beneficiary. The old rules allowed a beneficiary to "stretch" the IRA distributions over their lifetime. This was especially beneficial to your beneficiaries with long life expectancies. The new rules categorize beneficiaries as eligible or non-eligible. Eligible beneficiaries (spouse, minor child, disabled person, or person no more than 10 years younger than you) can still withdraw the funds over their lifetime. However, non-eligible beneficiaries (anyone else) must withdraw all of the funds within 10 years of your passing. There is no requirement to withdraw funds annually, but the entire balance must be withdrawn at the end of the 10 year mark.

Prior to the SECURE Act, you could not contribute to a Traditional IRA once you reached the age 70½. The SECURE Act eliminated the age restriction on Traditional IRA contributions. Beginning with tax year 2020, people with earned income can now contribute to a Traditional IRA regardless of their age.

If you earn too much to make a deductible contribution, you can still make a non-deductible Traditional IRA contribution, as there are no income limits to do so. Your contribution, when withdrawn, is paid out tax-free, while only your earnings are counted as taxable income. You can also convert those funds to a Roth IRA allowing your money to not only grow tax-deferred, but provided you meet the withdrawal rules, your earnings will be distributed to you tax-free as well.

The new RMD age is 72, however this only applies to those whose birthday is July 1, 1949, or after. If you were born on or before June 30, 1949, you turned 70½ by December 31, 2019, and you still fall under the old RMD age of 70½.

The SECURE Act pushed the RMD start date to age 72 for IRAs as well as employer plans such as 401(k), 403(b), etc. This new date applies to anyone who did not attain age 70½ by December 31, 2019. The new start date allows your money to continue growing tax-deferred for longer. If you were counting on that income to pay for your expenses, consider adjusting your spending based on the income sources you currently have. If you still need additional income, it may make more sense to withdraw funds from other accounts like savings or after-tax accounts. The key is allowing the tax-deferred status of your IRAs and other qualified retirement plans to continue working for you as long as possible without having to pay taxes on their withdrawal.

The SECURE Act should not affect the withdrawal schedule for your spouse as he/she is an eligible beneficiary. Prior to the SECURE Act, individual beneficiaries of any age or relationship could inherit IRA funds and distribute them over their lifetime. The new rules classify beneficiaries as eligible or non-eligible. Eligible beneficiaries include a spouse, minor child, disabled person, or another individual who is no more than 10 years younger than you. Everyone else is considered a non-eligible beneficiary and must withdraw 100% of the funds within 10 years of your passing.

If your funds are in a Traditional IRA, your adult children and grandchildren, or another non-eligible beneficiary, must withdraw the entire account balance in a rather short amount of time, and the funds will be counted as taxable ordinary income to them. Example: Your account balance at the time of your passing is $1,000,000. Your grandchild must withdraw the entire balance within 10 years from that date. He or she can do so by taking 1/10th annually, half now and half at the 10 year mark, all of it at the 10 year mark, or in some other way that suits his or her income needs. The bottom line is that your young grandchild is responsible for paying taxes on distributions totaling $1,000,000 in that 10 year period and must withdraw all of the funds even if he or she doesn't need them.

Yes. A strategy available to you today is the Roth Conversion. A Roth Conversion allows you to convert some or all of your Traditional IRA funds to a Roth IRA. Most Traditional IRA funds are pre-tax, meaning when you made the contribution, you deducted it from your income the following year. Because of this, a Roth Conversion usually represents a taxable event. If you've made non-deductible Traditional IRA contributions in the past, seek tax guidance, as the IRS requires you to use a formula to determine what portion of the Roth Conversion is taxable vs. non-taxable. Remember TIAA does not provide tax advice. Please consult your tax advisor for your specific situation.

Example: If you want to leave $1,000,000 to your children and grandchildren, you could convert $100,000 of your Traditional IRA to a Roth IRA each year for 10 years. This will only add $100,000 to your taxable income each year, rather than if you were to convert the entire balance at once. Once the converted funds have been in the Roth IRA for 5 years, they become qualified Roth dollars and can be withdrawn by you, or your beneficiary, absolutely tax-free. If you pass away and have successfully converted the entire balance to Roth, your children and grandchildren will be able to withdraw the funds within 10 years tax-free.