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Federal SECURE Act Affects Unclaimed Retirement Accounts

Posted By Administration, Thursday, January 23, 2020

Included in a federal appropriations act signed into law in December 2019 and effective on Jan. 1, 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 makes several changes related to tax-advantaged retirement accounts. Some of these changes affect the treatment of such accounts as unclaimed property.


Among the changes is a shift in the age at which retirement plan participants must take required minimum distributions (RMDs). For anyone not reaching the age of 701/2 by the end of 2019, the RMD age shifts from 701/2 to 72. This change is noteworthy because unclaimed property holders use the RMD age to calculate dormancy for retirement accounts.   


Under the SECURE Act change, unclaimed property holders need to consider when the account owner turned 701/– before or after Dec. 31, 2019. However, while some state unclaimed property statutes refer to the RMD age without specifying what that age is, others specifically refer to 701/2. Until such states revise their statutes, their laws conflict with the new federal law, which may cause confusion over proper treatment of such accounts.


The SECURE Act also eliminates the 701/2 maximum age for deduction of IRA contributions. This change may encourage IRA owners to contribute to their plans later in life, reducing the number of accounts that become abandoned due to lack of activity or contact with the holder. 


Holders may also see a reduction in inactive IRAs from a change affecting IRA distribution upon the account owner’s death. Under the act, inherited IRAs must be fully distributed within 10 years of the owner’s death with exceptions for certain qualifying beneficiaries, including spouses and minors. 


IRAs have been a hot topic in the unclaimed property world in recent months. In addition to the SECURE Act changes, the Internal Revenue Service’s Revenue Ruling 2018-17 became effective on Jan. 1, 2020. This clarification from the IRS affects tax withholdings from IRAs and how such withholdings should be reported to the states. NAUPA recently provided guidance to help holders with this change.  


These changes will likely be among the topics attendees discuss during the Banking and FinTech Industry Focus session and Industry Breakouts at the upcoming UPPO Annual Conference in Tucson, Arizona. Learn more and register by Jan. 27, 2020, for the best rate. 

Tags:  IRAs  SECURE Act 

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