On December 20, 2019 President Trump signed HR 1865 (Further Consolidated Appropriations Act) into law. Among many other tax law changes, the new law also created the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 which impacts the taxation of retirement accounts and will have unintended impacts on the escheatment of abandoned retirement accounts.
Title 1, Section 114 of the SECURE Act increases the required minimum distribution (RMD) age for retirement accounts under the Internal Revenue Code (IRC) from 70.5 to 72, effective for individuals who reach age 70.5 after December 31, 2019. Since the revision to the RMD date is prospective, it will not impact IRAs owned by individuals who reached age 70.5 in 2019. Conversely, under the new law, if an IRA owner reaches age 72 in 2020, they are required to take the RMD by April 1 of 2021.
Many state unclaimed property statutes include language in their IRA provisions which refer the RMD date as referenced by federal tax laws; however, states that have since adopted the Revised Uniform Unclaimed Property Act (RUUPA) of 2016 have specific IRA provisions referencing age 70.5 as the trigger to begin tolling the dormancy period. Clearly, age 70.5 will no longer be in sync with federal law so it remains to be seen if RUUPA and RUUPA states will modify their laws to reflect age 72. Another option would be to simply use broader language by stating the time when the RMD would be required under federal tax law.
Since the SECURE Act will create more inconsistency when escheating IRA accounts holders and service providers are encouraged to double check each state law to determine the correct reporting requirements.
Title 1, Section 107 repeals the maximum age for traditional IRA contributions (Paragraph 1 of section 219(d) of the IRC). Previously, IRA owners were only able to deduct contributions made into IRAs until they turned 70.5. Under the new law, there will be no limit to the age in which an individual can make and deduct contributions. This could result in more IRA contributions by older individuals, resulting in continued "contact/activity"; thus, reducing the number of IRAs being escheated to the states.
Other sections of the SECURE Act could also impact some holders. For example, Title IV, Section 401 modifies the RMD rules for designated beneficiaries. Specifically, paragraph H outlines special rules for certain defined contribution plans.
Holders need to understand these differences and make sure their internal systems are updated to accommodate the different reporting requirements. If using a third-party reporting vendor, ensure that your vendor reporting systems are up to date as well.
Georgeson will continue to monitor states that propose revised legislation to increase the IRA triggers to be in sync with federal tax laws on an ongoing basis.
This article is intended for informational purposes and is not to be considered legal advice.