SECURE Act and Self-Directed IRAs


If you are interested in Self-Directed IRAs, or if you already have one, you may have been following the news about the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). The Act was signed into law in December of 2019, and most provisions in the law went into effect on January 1, 2020. The act includes many reforms aimed at expanding and preserving retirement savings, according to the
House Committee on Ways and Means.

The SECURE Act represents the first significant retirement legislation since the Pension Protection Act of 2006. It’s a hot topic in our community, and everyone is wondering how the changes are impacting IRAs, including Self-Directed IRAs. 

Significant provisions of the SECURE Act

While there are many changes, here are a few of the provisions that will have the most significant impact on retirement savings:

  1. New age for required minimum distributions — The act raises the age for required minimum distributions (RMDs). Previously, those who held traditional IRAs, including those that were self-directed, were required to start taking RMDs from their retirement account at 70½ years old. The SECURE Act increases this age to 72. The idea is that this will give investors another year and a half of tax-deferred growth for their IRA investments. Many retirees started taking RMDs at 70½ because they were required to do so, not because they were necessarily ready to do so. 
  2. Relaxed contribution rules — The SECURE Act also repeals the age cap for contributing to traditional IRAs, including those that are self-directed. Previously, those saving for retirement were not allowed to make regular contributions after age 70½. The SECURE Act allows people to make contributions with no age cap, as long as they have earned income, W2 income, or 1099 income. Eliminating this time limit is another way that investors can continue growing their account, rather than having to stop contributing at a certain age. 
  3. New birth/adoption penalty tax exception — A one-time $5,000 withdrawal is exempt from the 10% early distribution penalty tax for distributions taken from an eligible defined contribution plan or IRA for the birth or adoption of a child. In the case of married couples, each spouse may take $5,000 from their individual accounts. The withdrawals for qualified expenses must be taken within one year from the birthday of the child or the finalized adoption date.
  4. Inherited IRA distributions must now be taken within 10 years — Before the SECURE Act, many people who inherited IRAs would “stretch” the distributions and tax payments out over their lifetime. Now, with limited exceptions, non-spouse beneficiaries must distribute inherited accounts within 10 years of the IRA owner’s death. If the beneficiary is a minor child of the IRA owner, this rule will go into effect once they reach the age of majority and apply for the next 10 years.
  5. Qualified distributions from 529 plans — With the SECURE Act, funds from 529 plans can be used to pay down qualified student loan debt and expenses for certain apprenticeship programs, up to $10,000. The $10,000 limit is a lifetime limit, not an annual limit, and the interest on student loan debt paid down by 529 plan funds cannot be deducted from the individual’s income taxes.

For more details about these changes and others, find information in this publication by the House Committee about expanding and preserving retirement savings. 

For your retirement savings, IRA Innovations can help set you up with a Self-Directed IRA, then serve as your administrator for alternative investments, such as real estate related assets, private company investments, and lending money. Learn more about these alternative investment options.

Learn more about the basics of Self-Directed IRAs from IRA Innovations in Birmingham, AL. 

IRA Innovations provides self-directed retirement account administration and education in Birmingham, AL, Tuscaloosa, AL, and Nashville, TN. As the experts when it comes to “alternative” investments including private equities, they can provide the necessary tools and information to get started with a Self-Directed IRA.