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Tax Planning for IRA Distributions under the New Tax Law

By: Terry Roe
Published in on February 17, 2020

As most of you know by now, the SECURE Act “the Act” was signed into law in December 2019. Many of the provisions impacting retirement planning and IRA distribution planning went into effect January 1, 2020. I am going to review a few of the provisions of the Act, but as always, encourage you to consult with your own tax and investment advisors to determine how your specific circumstances may have been impacted by the Act.

Required Minimum Distributions (RMDs)

The Act states that the beginning required minimum distribution age is shifted to age 72 for those IRA and retirement plan account owners who haven’t reached age 70 ½ before January 1, 2020. This means those reaching age 70 ½ prior to January 1, 2020 need to continue to take RMDs in 2020. The IRS may provide further guidance on this point so those individuals who reached age 70 ½ before January 1, 2020 may want to review how to approach their RMDs with their own tax and investment advisors.

Beneficiary IRA Distributions

Beginning on January 1, 2020, fewer IRA beneficiaries will be able to extend distributions from an inherited IRA over their lifetime. Instead, many will be required to withdraw all assets from the inherited IRA within 10 years following the death of the original account holder. Exceptions to the 10-year distribution requirement include: retirement accounts left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent. Non-individual beneficiaries, such as estates, trusts, and charitable organizations have a five-year window to distribute all assets. The new rules apply to IRA and retirement plan assets inherited after December 31, 2019.

For those who have designated a trust as the beneficiary, I strongly recommend you have the applicable documents reviewed to ensure your estate planning goals are being met.

Qualified Charitable Distributions

If you are at least age 70 ½ you have a great tax-advantaged opportunity for making charitable gifts. The law allows traditional IRA owners age 70 ½ or older to directly transfer up to $100,000 from a traditional IRA to a qualified charity. The Qualified Charitable Distribution (QCD) can be used to satisfy your RMD for the year. The amount of the RMD used for QCD is not included in income allowing you to kill two birds with one stone and even better yet because the income doesn’t show up in your adjusted gross income on your income tax return it could help in reducing the taxes on your Social Security Benefit or avoid Medicare premium surcharges. The QCD is a home run for those who are charitably inclined and qualify, it is a tax-saving no-brainer.

The SECURE Act includes a provision that will reduce the exclusion amount of $100,000 if the IRA account owner makes tax deductible contributions after age 70 1/2 to a traditional IRA. Again, as always, you should review your situation with your tax and financial advisors.

IRA/Retirement Plan Distribution Options (qualified births/adoptions)

Typically, if someone takes IRA or retirement plan distributions prior to age 59 ½ those distributions are subject to federal and state income taxes along with a 10% premature distribution penalty. There are a list of exceptions to the penalty. The Act adds another approved exception for qualified birth and adoption distributions up to $5,000.

IRA Contributions (age 70 ½)

As mentioned above, prior to the Act, traditional IRA contributions were not permitted once an individual reached age 70 ½. Effective January 1, 2020, if a person is working and has earned income there is no age cap on IRA contributions. Individuals who were 70 ½ or older before January 1, 2020 and had earned income are not eligible to make a prior year contribution for the tax year 2019.


The tax law changes of the last two years have been numerous. This article is intended to provide information that is general in nature and your circumstances are unique and personal, therefore, I encourage you to seek the advice of your tax or investment advisor before acting upon any of the information provided in this article.

Terry L. Roe is a financial advisor with Onyx Financial Advisors, LLC an independent fee-only registered investment advisory firm located in Idaho Falls, Idaho. He can be reached at (208)522-6400 or

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