Secure Act and How It Impacts the Tax On IRA

Brad Smith • February 10, 2020

As a part of an end-of-year appropriations act and an accompanying tax rule, the Secure Act was enacted by President Donald Trump in December 2019. The Secure Act entails tax changes that have little to do with retirement and came into being for increasing retirement savings of older Americans.

The Secure Act, also known as Setting Every Community Up for Retirement Enhancement Act, besides encouraging employers who were reluctant to invest in wealth management plans earlier, is an easier and cheaper plan to administer. There is one big anti-taxpayer change included in the act that will make the financially comfortable population and estate planners think twice. In this article, we will cover all the major aspects of the act, especially those that will impact individuals and small businesses. 

Increasing the age limit on Traditional IRA Contributions

Prior to Secure Act, individuals were not allowed to make contributions to a conventional IRA for the year at or after the age of 70 ½. The Secure Act allows retired individuals to delay availing required minimum distributions (RMDs) until the age of 72. There exists no age restriction on Roth IRA contributions and the Secure Act has maintained this rule.

The Change

Anyone who becomes taxable after the year 2019 will not be subject to age restrictions on contributions to conventional IRAs. Individuals can make contributions after the age of 70 ½ starting from the year 2020.

Key Point

If you want to make a contribution for the year 2019 tax year, it has to be done before 15th April 2020. However, if your age is 70 ½ or older by Dec 31st, 2019, you cannot contribute for 2019. This law allows you to make contributions for the tax year 2020 and ahead. 

Implications for IRA Qualified Charitable Distributions

Individuals who have crossed the age of 70 ½ are allowed to make a qualified contribution to charities straight from their IRA(s). This limit of the contribution amounts to $100,000 per year. These contributions are known as ‘Qualified Charitable Distributions’ or QCDs. Any QCDs made in 2019 will have the $100,000 limit condensed for the year by the total amount of deductions applicable for prior taxable years due to the amendment of the Secure Act. In simple words, the QCD allowance can be reduced due to the deductible IRA contributions made for the year you turn 70 ½ or older. 

People who turn 70 ½ in 2020 will not be asked to take out RMDs until they turn 72. If you want to withdraw annual required minimum contributions (RMDs) from taxed retirement accounts such as traditional IRAs, 401(k) accounts, SEP accounts or anything that falls in the same category. This rule is not applicable to Roth IRA(s) that is registered with your name.
 
Prior to passing the Secure Act, the first RMD was applicable when you turned 70 ½. There was an option of delaying the first payout till April 1 of the same year. If you chose to delay the payout, there had to be two RMDs withdrawn instead of one. This means that the first payout would be by the 1st April deadline and the second one will have to be by 31st Dec. The first payout will be for the previous year and the second will be for the current year. 

There is an exception for people who are still employed by the time they are between 70 ½ and 72 will not have to pay 5% to their employer and delay withdrawing RMDs from the plan till the time you’ve retired. 

The Change

By default of the New Law, the age limit for withdrawing RMDs has been increased from 70 ½ to 72. This development is applicable to people who cross 70 ½ age limit after 2019. For those who turn 70 ½ before 2020 will not be able to take advantage of the increased age limit. 

Key Point

As mentioned, if you haven’t withdrawn your initial RMD for 2019 and turned 70 ½ the same year, you must do it before 1st April 2020. Failure to do so will result in a 50% penalty on the shortfall. The second deadline for taking out the second RMD for 2020 tax year is Dec 31st, 2020. 

Disadvantages of the Secure Act

The law eliminates the Stretch IRAs for beneficiaries who are not spouses. This is disadvantageous to other dependents such as your children and grandchildren. It also impacts your financial security negatively. The Act also requires non-spouse beneficiaries to empty the inherited accounts by 10 years of the account owner’s demise. This is a considerably big change for those who are financially comfortable and don’t require their IRA balances for their post-retirement years but want to utilize them for their non-spouse dependents in the long term. 

Before the new law was passed, there was no time limit for non-spouse beneficiaries to drain the account. Anything that you inherited from your father or grandfather could be used over a long period of time.

If there is $100,000 balance left in the IRA Account to a 45-year-old non-spouse beneficiary, they will lose about $200,000 of tax benefits over the life expectancy of the child. 
The rule that allowed individuals to reap the tax benefits of their father or grandfather’s IRA account is known as the ‘Stretch IRA’ strategy. The Stretch IRA strategy works in favor of inherited Roth IRAs because the income through those accounts can increase and can be withdrawn without the federal income tax being applied to them. A stretch Roth IRA could secure you from paying a federal income tax for a number of years but the new rule reduces this advantage. 

The 10-year-rule limit beneficiaries from enjoying a federal tax-free income beyond 10 years. This development does not apply to beneficiaries who are suffering from serious illnesses or are disabled. It also does not apply to anyone who is less than 10 years younger to the account owner or those beneficiaries who are under 18. The exceptions do not apply to relatives. Please contact us here if you need any help with this.

Interested in Working With Us?

If you need help with estate planning or any other legal concerns, we are here for you. Don't hesitate to contact our firm directly for assistance. Our dedicated team is ready to provide support and guidance to you and your loved ones during important life transitions.


Whether you're ready to schedule a strategy session to discuss your specific needs or if you're interested in exploring our wide range of complimentary guides and additional resources, we encourage you to get in touch with us.


With licensed attorneys and offices located in both Illinois and Missouri, we are well-equipped to serve clients in these regions. Reach out to us today and let us leverage our expertise and care to guide you through the legal process.

Helpful Guides

Begin your journey by taking advantage of our collection of complimentary guides.

View Guides

Online Documents

Simple & Convenient, Cost Effective, Attorney Reviewed Documents.

Learn More Here

Recent Posts

March 6, 2025
Whether due to a sudden illness, an unexpected hospitalization, or other urgent situations, it's important to know what essential documents should be in place and how an attorney can help ensure a smooth transition for your loved ones.
Show More
March 6, 2025
Whether due to a sudden illness, an unexpected hospitalization, or other urgent situations, it's important to know what essential documents should be in place and how an attorney can help ensure a smooth transition for your loved ones.
March 6, 2025
Click HERE To View March Newsletter
February 28, 2025
Understanding the difference between an heir and a beneficiary can help you navigate estate planning more effectively and ensure that your wishes are carried out properly.
February 21, 2025
Estate planning is about more than just dividing assets; it’s about making sure your wishes are honored when it comes to your health, finances, and legacy.
February 14, 2025
Beyond understanding the medical aspects, there are critical legal steps you should take to safeguard your rights, clarify your wishes, and prepare for any unexpected situations.
February 7, 2025
Estate planning is a sensitive and complex process that often involves difficult decisions. One of the most challenging choices parents may face is whether to leave their children unequal inheritances.
More Posts
Share by: