How will the SECURE Act impact your taxes? Alex Perny of Advanta IRA explains the key changes in the SECURE Act and how they will impact your filings this year.

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The SECURE Act and Your Taxes

The SECURE Act, or the Setting Every Community Up for Retirement Enhancement Act, has brought some major changes in the financial landscape, impacting taxpayers throughout the United States. The legislation aims to help Americans save more effectively for their retirement years, but it also affects the way taxes are calculated and distributed. Here’s what you need to know about how the SECURE Act affects your taxes.

Required Minimum Distributions

One of the most significant changes the SECURE Act introduced was the modification of the Required Minimum Distribution (RMD) age. Previously, individuals with tax-deferred retirement accounts, such as traditional IRAs, had to start taking RMDs at age 70 ½. The SECURE Act has pushed that age out to 72, allowing individuals to keep more money in their accounts for a longer period and delay the tax hit associated with distributions.

Inherited IRA Distribution Rules

Another notable change under the SECURE Act affects those who inherit an IRA from a deceased individual. Previously, beneficiaries were allowed to stretch out the RMDs across their lifetime, providing a tax-deferred value that could last decades. The new law eliminates that option and replaces it with a new 10-year rule. Beneficiaries must now withdraw the entire balance of an inherited IRA within 10 years, potentially increasing their tax burden and reducing the value of the account.

529 Plans

The SECURE Act also expands the use of 529 savings plans. These plans previously could only be used to pay for higher education expenses. The new legislation now permits tax-free withdrawals from 529 plans to pay for apprenticeships, homeschooling, and up to $10,000 of qualified student loan repayments.

Small Business Incentives

Finally, the SECURE Act includes new provisions to incentivize small business owners to offer retirement plans to their employees. The law offers tax credits for employers who create new plans and sets up multiple employer plans (MEPs) that allow small businesses to band together to offer a single plan to their employees.

Conclusion

The SECURE Act has brought some significant changes that could have a profound impact on your taxes. The law alters the RMD age, eliminates the ability to stretch out inherited IRA distributions, expands the use of 529 savings plans, and incentivizes small businesses to offer retirement plans to their employees. While the SECURE Act may bring some challenges, it also provides new opportunities for Americans to save for their future retirement needs. It’s important to discuss these changes with your financial advisor to understand how they may impact your unique financial situation.